How to Strategize Restaurant Menu Pricing and Combat Inflation

Restaurant menu prices increased to their highest rate in 40 years according to the U.S. Consumer Price Index. To combat inflation, FSR and QSR brands have raised prices by at least 7% over the past year which was the highest rate since 1982. Grocery prices are also increasing at the same pace as restaurants at 7.4%. And it doesn't look like prices will fall anytime soon as the BLS estimates overall food prices could rise another 4 percent in 2022.

Because of this, restaurant operators are trying to figure out the best methods to price their menus amid a range of inflationary pressures all while facing continued labor shortage and supply chain issues. According to a study, restaurants are advised to base their new menu prices on what customers are willing to pay and the value being delivered, rather than increasing prices just to cover the growing costs.

The key is to price menus in a way that will address the various cost increases without turning off customers who have been understanding thus far. But that can be easier said than done.

6 Steps to Implement in Your Restaurant Menu Pricing Strategy

For your brand to succeed in this inflationary environment, your pricing strategy needs to be flexible, strategic, and consumer-centric. Don’t get caught up in hiking prices to reach your costs without understanding your profit-margin objectives and your guests. Invest in restaurant technology that can help control costs and reduce manual intervention, collect valuable guest data to understand customer attitude, and communicate your brand’s values and offers through multiple marketing channels.

1) Raise Menu Prices Strategically

The first step restaurants take to combat rising inflation is raising menu prices. It’s the obvious thing to do. For this to be successful (and not make guests irritated with rising costs) is to strategically increase certain items by analyzing the economic value of each.

Don’t add a few dollars to each menu item and call it a day. Use data to analyze which items are most popular with guests and add small price rises to them. Guests are becoming more understanding of the impact of the economy on the food they’re eating so they won’t mind paying a little more. Make incremental raises over an extended period and gauge guest behavior to see the impact of your price changes. This will help you identify whether you need to adjust pricing at a lesser value or can increase them again sooner rather than later. The RMS recommends keeping each increase at or below 1.5-2%.

2) Understand and Balance the Cost Level of Your Menu with Guest Data

One of the keys to a successful menu pricing strategy is to balance your high-cost menu items with your low-cost ones. With a pricing strategy based on guests’ transactional data and segments, you can assess where prices are high or low. Gathering guest data will help you make good menu pricing decisions based on high-volume items without losing guest loyalty.

• High profitability and high popularity: These menu items are making you the most profit and they’re loved by your customers! Focus on promoting these meals and better highlighting them on the menu to encourage a spike in sales!
• Low profitability and high popularity: People love these meals, but you’re not making money on them. If you’re not planning on changing the prices on your menu then you’ll need to figure out a way to increase the profit margins on these meals. Get creative with these and think of some ingredient swaps that will transform them into high profitability plates!
• High profitability and low popularity: Try and understand why these items aren’t appealing to your guests the way some of your other options are. It could be the price, portion size, or how you’ve positioned them in your restaurant. See if any changes can be made to help increase their popularity! A fun way to do this is by promoting them as a weekly special and making sure your customers know how delicious the meals are!
• Low profitability and low popularity: If no one’s purchasing them and they're not making you much money, these meals could be some you consider taking off the menu. If you’re not ready to abandon them completely then you could try experimenting with different marketing techniques to increase the demand. Another thing you could do to help save some money while keeping these meals available is by cutting back on the amount of supply you keep of the ingredients. If they’re not selling often, you don’t need to keep a large stock of them.

3) Update Your Menu with New Recipes

Guests are paying for an experience along with the food your brand has to offer. With supply chain shortages and inflation, it might be time to get creative with your menu items. Brainstorm new dishes with overlooked ingredients and low costs that can still attract guests and make them excited for more. It never hurts to hit that refresh button as long as you keep popular items for your regulars!

4) Update Pricing Based on Revenue Channels

If you have a branded mobile app and online ordering on top of dining in and drive-thru, you might want to consider pricing differently across these channels. Guests are willing to pay more for great hospitality, loyalty benefits, and ease of ordering. Since the pandemic, the definition of value has changed to include these factors. It doesn’t matter what the cost is, it matters what guests are getting for that cost.

5) Plan Ahead Using Market Trends

Optimizing your restaurant menu pricing doesn’t have to happen as soon as issues like inflation, labor shortages, and supply chain shortages arise. You can predict surges before they happen to stay on top of your restaurant menu pricing strategy. Plan your pricing based on market trends for when specific ingredients become higher cost during a given season. Rely on vendors or market reports to determine when changes will happen.

6) Manage Inventory and Reduce Waste

Food costs account for about 35% of most restaurants’ total costs. That means your inventory is a direct investment into the profitability of your business. By not eliminating the waste from your inventory, you’ll be throwing away a large chunk of your profits. Performing a menu audit and keeping track of your inventory will better help you determine where to cut your losses and how much of each ingredient you should really be ordering. 

Food waste happens between both the front and back of your business. If you notice customers constantly bringing food home or leaving it unfinished then it may be a good idea to decrease your portion sizes. Another way food goes to waste is when you’re not using as many of the ingredients as possible. Get creative and optimize how much use you get out of your inventory! These small changes may be what saves your restaurant from drowning in inflation.

At the end of the day, you want to make sure that you balance profit-margin objectives and guest happiness. Appreciate your guests and listen to their feedback to make any necessary adjustments!