As costs continue to rise, in part driven by minimum wage increases around the country, restaurant owners are wrestling with how to cover higher costs without driving away customers.
A number of cities around the country, like Chicago, Los Angeles, San Francisco and Seattle, have adopted higher minimum wage standards, and it appears that more cities may follow suit, making the issue of higher wages one that isn’t going away anytime soon.
While competitors may be quick to respond to rising wages by simply increasing menu prices quickly, why not take a more thoughtful approach?
If you take the time to evaluate all the data points available to you — point-of-sale figures, site and location characteristics, trade area demographics and competition, along with overall market economics — you can come up with a strategic, long-term solution that addresses price increases in a smart way that won’t drive away your customers.
Some restaurant owners are tempted to simply raise menu prices across the board to make up for higher costs, but this type of knee-jerk reaction could be a recipe for disaster. Luckily, there are ways to address rising costs without hurting your business.
If you look at all areas of your business, you can devise a plan that will help you avoid upsetting your customers. Here are some ways to address the issue of rising wages:
1. Don’t change menu prices all at once. Raising prices across the board right away will not serve you well. Let your competitors make that mistake. You’ll demonstrate a stronger value proposition to your customers if you practice a little patience and are thoughtful about when and how you raise menu prices.
2. Review your transactional data. Understanding data that relates details on such things as what items sell together, the time of day an item sells best, and which locations sell the most of a particular item or combination will help you determine how to plan your price changes.
For example, it’s a no-brainer that people order fries with burgers, but it’s important to know every combination of bundles so you can see how price changes will impact the average customer. The data will also show which items can withstand a price increase and how raising the price of one item in a bundle may impact sales volume of other items.
3. Evaluate each location’s performance. If you have multiple locations, you’ll want to evaluate the performance of each unit to determine if any are underperforming, and which ones have the potential to improve. But before you can evaluate performance, you should set individual standards for each location. While a particular unit may perform at a lower level than others, it could actually be over-performing based on where it is located. Once you have identified which units are truly underperforming, you can determine why and how to help the locations.
4. Consider tier pricing. Different locations can support varying levels of pricing, so study your customer data to determine the best menu prices for each location. To determine how many pricing tiers your operation can support as well as the composition of the tiers, evaluate the geography, demographics and economic conditions associated with your current sites, in addition to customer behavior and sensitivity to price changes.
5. Don’t just focus on menu prices. There could be other areas of your operation where changes could be made to compensate for increased costs, so don’t fixate on prices alone. Review your staff scheduling to ensure that you are properly staffing your restaurant during peak hours and not overstaffing during slow hours. It’s also a good idea to review other costs to determine where adjustments could be made. And you can look for ways to increase sales through better marketing and promotions.
Mark Kuperman, president, North America, at Revenue Management Solutions, manages client accounts across all food and beverage segments. Kuperman earned a B.A. in economics with a minor in statistics from Northwestern University before attending the California Culinary Academy and completing an apprenticeship in Europe. After several years working as a chef, Kuperman returned to school to earn his master’s degree in hospitality management from Cornell University. After graduation, he followed his entrepreneurial spirit and opened a limited-service restaurant.
