price for prof i ts
Rising operational costs siphon away revenue. Find out the
menu and pricing strategies others successfully employ. BY JODY SHEE
CLOCKWISE FROM TOP LEFT: 1) Jim
‘N Nick’s Bar-B-Q makes more money
from salads since the chain switched to
meatless base salads with add-on meat
for an extra charge. 2) Monday night
at Claddagh Irish Pub features buy one
fish and chips, get one free, drawing
in more customers who will likely buy
drinks. 3) At Second Home Kitchen &
Bar, lamb carnitas with lamb shoulder
confit are a profitable menu item thanks
to in-house butchering of lamb halves
Your colleagues have wrestled with similar menu and price considerations and have come
up with solutions that work for them and may work for you.
he positive Restaurant Performance Index of the past few months
points to certain industry optimism. But what about those rising commodity/
You could just raise menu prices to offset the costs. But not really. Some 63% of consumers
surveyed for Mintel’s Dining Out—U.S., January 2012 report said it is too expensive for them
to eat out regularly, and 23% said they would be spending less at restaurants in 2012 than they
did in 2011. Consumers are a bit skittish when it comes to price.
Operators of all segments are looking for remedies for price resistance. Restaurants such
as Applebee’s, Chili’s and Morton’s The Steakhouse have found that they can draw in more
customers and increase profits if they ensure that the menu offers items and prices that appeal
to the cost-conscious as well as to those inclined to splurge. No more “ 2 for $20” limited-time
meal offers. Now the deals are permanent.
Wendy’s has become well-known in industry circles for its tiered-pricing strategy, offering
value, mid-level and premium products and pricing. Others are taking that path, as well.
PHOTO CREDIT: Clockwise, from top left: 1) Jim ‘N Nick’s Bar-B-Q/Angie Mosier 2) Claddagh Irish Pub 3) Sage Restaurant Group
try tiered pricing
As former managing director for Lehman Brothers’ investment banking division, David
Kostman was all about menu and pricing strategies from the day he opened the first Nanoosh
Mediterranean Hummus Bars & Counters in New York as chief executive officer four years
ago. Now there are three company-owned and one franchised unit, all committed to organic
ingredients and serving the busy New York/Manhattan areas.
“We originally designed the menu in a way that would allow a good gross margin,” Kostman
says. The concept offers variety (soups, salads, hummus plates, wrap platters/bowls, desserts
and drinks), but with limited ingredients. The wraps, salads and hummus plate, for example,
use the same ingredients, ensuring limited waste.
Yet in spite of his well-thought-through strategy, Kostman determined there was a way to
make it more profitable with his own version of tiered pricing in the restaurants, which
offer dine-in and to-go services. Kostman realized that those dining in have a different price
sensitivity than those who come to grab something quick and go back to their office desks. So
in September 2011, he started two-tier pricing, with those ordering food to go paying 10% to
13% less and receiving slightly smaller portion sizes.