FOOD AND MENU PRICING

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And this is a new post from lazygourmet...



Menu pricing is one of the most important decisions for any restaurateur. It may look easy, but the fact is that you cannot price it simply by your intuition. It requires consideration, observation and asking certain questions. For instance, do you remember your last visit to a market or a mall as a buyer? How many goods had an acceptable price enticing enough to motivate you to make a purchase? In reality, pricing must be an amount that someone else is ready to pay for your service or product.



Creating a restaurant menu is tricky business. Not only does it involve selecting attractive and popular dishes, but also pricing them competitively. Pricing is important not only to make the business profitable, but also to offer good value to customers to win them over.



Tips on Pricing the Food Items Let's see how to price the food items on the menu:


* Generally, successful restaurants keep the food costs in the range of 27 to 32% of food sales. These percentages can be higher or lower depending upon the type of restaurant. However, to be more accurate, it's best to compare your cost percentage with restaurants having similar menus and services.


* While calculating the cost of food, all ingredients must be included. Work out the cost of each recipe for each menu item and don't forget to include things, like spices and garnishes in the cost.


* Your recipe costs for items and sales prices will determine whether your food cost is in line with the industry averages. This will also help in monitoring your performance and analyzing problems and trends.


* Ideally you should be able to determine a consistent overall food cost which, when combined with proper pricing, will positively impact on your profitability.


* It's also important to remember there are other costs of operating a restaurant that need to be taken into account to determine optimal pricing for menu items. These include the cost of labor, rent and debt.




Tips on Pricing Alcoholic Beverages Now, let's see how to price the alcoholic beverages on the menu:


* Beverage costs are generated in the mid-20% range of beverage sales. As for food, these can be higher or lower. Fine dining establishments may run up to 40%. On the other hand, restaurants serving draft beer may run as low as a 15% beverage cost. So, it's important to find out the industry averages by comparing your cost percentage to restaurants with similar menus and service levels.


* Beverage costs, like food costs, must be constantly monitored, by comparing with previous performance, with other restaurants and the industry averages. This will help you to competitively price the items and increase profitability of your total operation.


* Although you'll need to cater for normal taxes, you must be clear about additional taxes in your local jurisdiction, as they may impact beverage pricing.





If you take the above factors into account while pricing the items on your menu, you'll certainly succeed in running a profitable restaurant.




Related post: Financial Strategic Thinking



Want to learn more?

michelpiton@gmail.com
+66(0)877733413

HOW TO AVOID SALES STAGNATION?

Thanks God It's Friday!
And this is a new post from lazygourmet...



Restaurant Marketing experts contend that there are four ways in which hospitality businesses can improve their financial performance. None of these ways are mutually exclusive, so you can try any combination of these four variables at any given time and in any order of importance:
1. Increasing sales volume (getting more customers to your venue)
2. Increasing price (put up your prices on your menus)
3. Cutting costs (decrease your food, beverage and wage costs)
4. Increasing the average spend (get your customers to buy more every time they buy of you)
Combining price and sales volume will no doubt post increased revenue. Cutting costs will also result in savings.

Restaurant marketers (i.e. you the business owner or manager) mistakenly assume that the only means of increasing sales is to net more customers.

While its true that selling to more people will definitely make your sales go up, there can also be several other, more innovative ways of increasing turnover, such as increasing frequency of sales to the same customer or making higher value sales to him/her.
It does follows that turnover also increases when customers spend more each time they buy from you (increasing spend) and when they do it more often (increasing frequency).
McDonald's used this technique to great aplomb when it taught its sales force to prod customers with the seemingly innocuous poser:
“Would you like fries with your burgers, please?”
A simple question like that, marketers testify enabled the snack food giant to increase its turnover worldwide by $19 million a day!

Hence the four variables that impact sales in any business are:
1. The Prospects, i.e. the number of people who express an interest in doing business with you (people that call your or look at your web site etc...)
2. The Conversion Rate, i.e., how many actually buy from you and become your customers
3. Their Average Spend, i.e. the average amount that each customer spends when they buy from you.
4. Number of Transactions or Frequency of Sales - The number of times, on average, that customers buy from you in a year
If we were to express these four variables as a mathematical equation, it would look somewhat like this:
Sales = Prospects X Conversion Rate X Average Spend X Number of transactions
Clearly, sales can be increased by improving any combination of these four variables.

Now let us examine each of these sales drivers more closely:

Increasing Sales:,
Buying decisions are seldom made on the first contact. In fact, according to the National Sales Executive Association, US, you can increase your sales by up to 80% simply by following up on the same, old customer!
Here are some statistics from their survey:
2% of sales are made on the 1st contact
3% of sales are made on the 2nd contact
5% of sales are made on the 3rd contact
10% of sales are made on the 4th contact
This implies that 80% sales are made on the 5th-12th contact!
In other words, that’s the amount of time, energy and resources that you have to spend on ensuring full conversion rate from every prospect!
Increasing your conversion rate can increase sales substantially, especially if you are starting from a low base. So how many pieces of marketing do you need to send from your restaurant?

Increasing Frequency:
This is by far the most powerful sales driver. You have already attracted and converted a prospect. A more formidable challenge is selling to the same customer over and over again. This is well worth your time and effort as research indicates that it costs six times more to attract a new customer than it costs to re-sell to someone who has bought from you before. So, even if you are unable to sell to the same customer, do lot of and cross selling. Turn him/her into your brand ambassadors and through him/her sell to his/her friends, family and colleagues.

Increasing Spend:
In marketing parlance, this would imply up-selling. The Average spend from a customer can be increased both by cross-selling and up-selling. Cross selling simply means selling customers a different but related product, in addition to what they asked for.
This is as simple as up selling to a more profitable and higher prices menu item.

Increasing Price:
Realizing that the increasingly affluent and demanding consumer now comprises a very large spending force at the top end in all developed economies, clever restaurateurs have subtly began to increase price on the same value of product. This strategy is being effectively deployed across sectors in the food and beverage industry.
Price increase however is a risky strategy and should be resorted to only when there is a perceived (if not real) enhancement in the value of the product in the consumer’s mind. This can very effectively be done through a media blitz, before and after announcing a price hike that presents you as a very exclusive, well differentiated brand from the low-priced, run-of-the-mill competing products.

Related post: Bringing New Customers to you Restaurant

Want to learn more?

michelpiton@gmail.com
+66(0)877733413

TWO SCHOOLS OF THOUGHT IN MANAGING RESTAURANTS

When it comes to restaurant operations there are two schools of thought in restaurant management: one watches dollars go down the drain, while the other watches dollars come in the front door.

Managers who follow the first school of thought tend to spend their time doing hands-on tasks usually assigned to hourly employees, with the goal of creating higher bonuses for the managers. Managers who follow the second school of thought tend to spend their time building sales and managing the hourly employees; this group works toward an end result of higher wages for the employees — although this is sometimes at the expense of a lower monthly bonus for the managers.

During my time as a manager/waiter/prep-cook/expediter at a major London restaurant chain, it was debatable whether I was actually a manager or an over-paid key employee. My time was so equally divided between cooking and cleaning that managing the restaurant only happened after the doors were locked. The bonus structure of the restaurant was such that bonuses were paid even if sales goals for the month were not met, providing that the Income-Before-Occupancy (Net Operating Income) percentage met the budget. Consequently, every general manager believed that, in order to secure their monthly bonuses, it was advisable to “send the most expensive hourly employees home first” if there was any hint that the restaurant was having an “off” month.

There are three problems with this approach to management:
First, a restaurant’s most expensive hourly employees are usually the most valuable (or at least they should be!).
Second, once the manager sends the hourly employee home and takes over the employee’s station, he or she has now become the highest-paid hourly employee working a particular station.
Third, hourly employees often rely on working 40-plus hours a week to make ends meet.

Nothing is more frustrating to an employee than having a manager’s self-interest impinge on his or her own livelihood. Two of the most disconcerting days in my management-training period were spent washing dishes for ten hours each day. I couldn’t fathom why the restaurant owner believed that it made economic sense to have the dishes washed by me — an exempt employee paid a $26,000-per-year base salary — rather than by the usual non-exempt employee paid minimum wage of $4.75 per hour. At my hourly rate, it was costing the restaurant an additional $7.75 per hour to have the dishes washed. In addition, the usual dishwasher had an unexpected two extra days off that week.

It is a given that a restaurant manager must know how the restaurant’s product should look and taste, as well as how to prepare the product in order to help out during “crunch” times. Nevertheless, a manager needs to ask himself who is running the restaurant if he is in the kitchen. If a manager is spending all of his time in the kitchen covering an hourly paid position, then no one is out front making sure that the customer is being properly served. It is my contention that managers should be on the floor building sales, not in the kitchen making sandwiches. The simple fact is that restaurant managers are hired to lead and motivate employees, increase guest retention, and solve problems.

Managers need to ask themselves, “Am I being pro-active or reactive?” The manager who is on the floor using his or her personality by conversing with guests and maintaining a visible profile is the manager who is working for the long-term. This manager is more aware of the happenings in the restaurant and more apt to remedy customer complaints. It is a fact that people are dining out more than ever before, and that they expect to be entertained as well as fed. Managers who are on the floor creating an upbeat, inviting, positive working environment create an atmosphere that guests will enjoy, guaranteeing their return. These managers are being pro-active.

The manager who is sending employees home early at the end of the month to make budget is being reactive to his own financial needs, and not the needs or expectations of the guests. The down side to this approach is exponential. Employee morale runs low at the end of every month because an employee is not working the hours needed to meet his or her own personal monthly budget. This low morale typically results in a higher employee turnover rate since employees are likely to seek jobs where they have a greater likelihood of attaining pay for 40 hours per week, whether it is the first or last week of the month.

Higher turnover equals more training; more training equals fewer dollars to reward good employees; losing good employees results in lower guest retention because many people like to go to a restaurant where they see the same employees time after time; as a result, if a favorite employee leaves, some guests may follow. Higher sales always equal happier employees. The wages of servers and bartenders are directly linked to higher sales; the wages of non-tipped employees will also benefit from higher sales since the restaurant will be able to increase wages as a result of the higher sales.

Which school of thought does your management style fall into? If you are in the first school, I urge you to think twice about sending hourly employees home early to increase your bonus. If you are in the second school, keep up the good work; you are likely to have both happy employees and satisfied customers, which is a goal that is common to all restaurants.

Related posts: Keep your Staff Happy, Financial Strategic Thinking

Want to learn more?

michelpiton@gmail.com
+66(0)877733413

FINANCIAL STRATEGIC THINKING

Thanks God It's Friday!
And this is a new post from lazygourmet...

We can disagree about when things started to go wrong, but the one thing we can all agree on is that the way you perceive and think about your business needs to change if you are to either start, or continue to build success long term.
The days of "you build it and they will come" have gone - if they were ever really here to begin with (another debate for later).
What is necessary now in operating a food service business today is the need to think, plan and act more strategically than you ever have before.
To ask more complex questions and find deeper, more long term answers than you have probably ever done or felt the need to do.

So based on this notion and the work I have been doing with my most successful client through this economic tumult, I would like to propose some areas with which to start.

1. Realize that you have to think long-term continually and not short term constantly.
You have to begin to take a long hard look at your business and determine if there are parts of it you need to let go. Is your catering business really giving you the ROI you need or was it just something that you thought could compliment your dine-in success but really hasn't? Do you really need to hire a GM in order for you to focus enough on having the conversations and doing the work necessary to drive your future success? Is it time to get some help with your marketing or to fine tune your concept to help guests (and yourself) really understand who you are (in your guests perception not yours) and what it is you need to offer (versus what you want)? And to whom you need to offer it? Do you have that business plan (marketing plan?) that helps guide you on a daily basis or is it just something gathering dust on the shelf? Are you just flying by the seat of your pants, reacting to things that happen to you?

2. Prepare to do battle.
People's fears over the economy and for some, the realistic need to cut back on spending isn't going to subside tomorrow. What do you need to do today, tomorrow and the next day, to not just deal with it but to take advantage of it by reconfiguring your business to succeed in spite of it? How can you decrease your break-even point instead of just cutting costs on a shift-by-shift basis as you encounter things you can do without? How do you configure your service and pricing models to add value to the guest experience in a more creative and innovative way that guests respond positively to, without further decreasing margins or diluting your brand? How can you heal the damage already done so that it doesn't become a weak spot moving forward? What hiring, retention and coaching processes need to be begun, changed or done away with entirely in order to be able to change your culture as deep and fast as necessary in order to achieve long-term success?

3. Start to look at what your market will look like in 6 months - a year - two years from now.
How will you fit into it? Will you? What do you need to do now to make sure you succeed in such a market? Are you keeping track of trends? How can you get better at it? Can you improve your networking with the right business minds in your community and market to be able to pick up on unmet needs or opportunities that you need to take advantage of? If you were to open your restaurant 6-12 months from now, would it be the same one you have now? What would you change? Why? Why not now? Will your competitors be the same or will you encounter others? Do you have a plan to constantly and holistically reevaluate your business in order to keep ahead of everyone else? What do you need to do to take the next step and become the trendsetter yourself?

4. Develop your game plan now.
Stop looking at labor, food, rent and training as costs and start to look at them as investments in your success. Measure them as diligently as you do your financial returns and scrutinize not their need but their effectiveness and begin to demand more accountability out of yourself and your staff in reaching your goals. Create a marketing plan that allows you to be able to measure results more efficiently and effectively and that creates the seamlessness and momentum, necessary to make 2+2=5, or 6, or even 7. What can you attack structurally, that can yield you better returns? Shouldn't you revisit that lease to make sure it reflects true market rents given the economy and occupancy rates today? Can you afford to still pay prices from years ago? Have you kept up with demographic shifts in your market? Do you need to move your business to better reflect your proximity to your target market? Do you need to revamp your pricing, menu, production or service processes to be able to add more value to the guest experience you offer?

5. Be more calculating in your risk taking, but don't become risk averse.
Are you making smart purchases that reflect true market pricing or are you still paying for someone else mistakes? Are you renegotiating your vendor agreements to take advantage of lower prices? Are you rebidding those agreements? When is the last time you re-engineered your menu? Is now the time to open that next location in order to consolidate and expand your market share? Or to take advantage of your competitors misfortune? Are you capitalizing on your past success by leveraging your credit levels and terms? Is there any investment you can make to leverage your knowledge of your market or your streamlined operations and gain market share external to your existing business? Is it time to open that BBQ business to capture an altogether different market than your upscale full service venue?

6. Prepare yourself to change with your change.
Are you keeping up on industry trends and best practices? Are you devoting enough time to growing yourself in order to be the best you can be in order to help those around you be the best they can be? Are you investing in your "A" players enough so that they continue to see you as the only place they would ever want to be? Are you trimming the "C" and "D" level talent form your ranks in order to improve not only your operations but also your effectiveness as a leader? Are you raising standards instead of lowering them? Have you purged your business of any "just getting by" or "just surviving" thinking and actions? Or are you continuing to subsidize million dollar mediocrities?

Simply reacting to your circumstances may have allowed you to keep up so far. This isn't true anymore. The competition on the other side of this purging will be fierce; any decision to maintain the status-quo will only end in disaster for you and your business.
Be proactive by developing your strategic thinking skills and put them into action to help you build a better business and a better life for yourself. You deserve it.

Related post: Understand your real job, Would you like to work less and get more done?

Want to learn more?

michelpiton@gmail.com
+66(0)877733413