Restaurant owners very rarely have the privilege of competing on price.
The cost of buying food for a restaurant, tends to keep the playing field even… except for the purchasing power and infuence of large restaurant chains.
Menu prices are more a function of costs than achieving an industry standard margin goal. Consider the cost-of-goods-sold factors: (food only)
* Food costs — an average food concept would target food costs at 25-30% of sales. Higher quality food concepts obviously endure higher food costs and vice versa. Lately, gas prices have had a significant effect on food costs, as the cost of deliveries continue to increase. It’s not unusual to pay “drop charges” of $200 per delivery. Obviously, fuel costs affect every item on the menu as the items are grown and shipped.
* Paper costs — Quick service restaurants experience higher paper costs in order to serve “to go” customers. I’ve seen a range of paper costs from .5% of sales to as high as 5%.
Many restaurant owners have a very simple method of establishing retail menu prices. After determining all of the costs for each ingredient of a recipe–simply multiply the total cost by 4. For example,if a recipe for an entree has a real cost ( all ingredients included) of $5.49– the menu price for the item should be no less than $21.96. This, then, becomes the recipe’s “theoretical cost.”
In theory, the menu price of $21.96 should help the manager to deliver an actual food cost of 25-30 percent. Variance between theoretical and actual food cost is affected by theft, grazing, waste and over-portioning.
When nearly one third of every dollar that comes into a restaurant is expensed daily, it becomes a challenge to drop prices for competitive advantage. The owner still has to pay rent, SBA loans, labor, marketing, utilities, etcetera, etcetera.
It would be a good thing if we could attract customers to our restaurant on an advantage of something other than price.