1. Managing Food and Beverage Pricing
Chapter 6
Managing Food and Beverage Pricing

2. Main Ideas Menu Formats Factors Affecting Menu Pricing
Assigning Menu Prices
Special Pricing Situations
Technology Tools

3. Menu Formats Menus – standard, daily or cycle.
The standard menu is fixed day after day.
The daily menu changes every day.
A cycle menu is a menu in effect for a specific time period. The length of the cycle refers to the length of time the menu is in effect.
Daily or weekly menu specials provide variety, low-cost raw ingredients, carryover utilization, or test-market potential for new menu items.

4. Factors Affecting Menu Pricing
Total revenue is generated by the following formula:
As price increases, the number of items sold will generally decrease.
Price x Number Sold = Total Revenue

5. Factors Affecting Menu Pricing
Local competition
Service levels
Guest type – price sensitivity
Product quality
Portion size
Ambience
Meal Period
Location
Sales mix

6. Factors Affecting Menu Pricing
Sales mix refers to the specific menu items selected by guests.
Sales mix will most heavily influence the menu pricing decision
Price blending refers to the process of pricing products, with very different individual cost percentages, in groups with the intent of achieving a favorable overall cost situation.

7. Assigning Menu Prices Product Cost Percentage/Pricing Factor
Contribution Margin

8. Assigning Menu Prices
The formula for computing food cost percentage is as follows:
This formula can be worded somewhat differently for a single menu item without changing its accuracy. Consider that:
Cost of Food Sold
Food Sales = Food Cost %
Costs of a Specific Food Item Sold
Food Sales of that Item = Food Cost % of That Item

9. Assigning Menu Prices Product Cost Percentage
The principles of algebra allow you to rearrange the formula as follows:
Cost of a Specific Food Item Sold
Food Cost % of That Item
= Food Sales (Selling Price) of That Item

10. Assigning Menu Prices Pricing Factor
A cost factor or multiplier can be assigned to each desired food cost percentage as follows:
The pricing factor when multiplied by any product cost will yield a selling price that is based on the product cost. The formula is as follows:
1.00
Desired Product Cost % = Pricing Factor
Pricing Factor x Product Cost = Menu Price

11. Assigning Menu Prices Contribution Margin
Contribution margin is defined as the amount that remains after the product cost of the menu item is subtracted from the item’s selling price. Contribution margin is computed as follows:
Selling Price – Product Cost = Contribution Margin

12. Assigning Menu Prices
When this approach is used, the formula for determining selling price is:
Goal is setting a good price/value relationship in the mind of the customer.
The selling price selected must provide for predetermined operational profit.
Product Cost + Contribution Margin Desired = Selling Price

13. Special Pricing Situations
Coupons are a popular way to vary menu price.
Buy one, get one free, or
Some form of restriction is placed on the coupon.
Coupons have the effect of reducing sales revenue from each guest in the hope that the total number of guests increases to the point that the total sales revenue increases.

14. Special Pricing Situations
Value Pricing refers to the practice of reducing all or most prices on the menu in the belief that total guest counts will increase to the point that total sales revenue also increases.
Bundling refers to the practice of selecting specific menu items and pricing them as a group in such a manner that the single menu price of the group is lower than if the items comprising the group were purchased individually.

15. Special Pricing Situations
The difficulty in establishing a set price for either a salad bar or buffet is that total portion cost can vary greatly from one guest to the next.
The secret to keeping selling price low for a salad bar or buffet is to apply the ABC method. A items should comprise no more than 20% of the total product available; B items, no more than 30%; and C items, 50%.

16. Special Pricing Situations
Use the following formula to determine buffet product cost per guest:
Total Buffet Product Cost
Guests Served = Buffet Product Cost per Guest

17. Special Pricing Situations
Bottled Wine
How you decide to price the bottled wine offerings on your menu will definitely affect your guest’s perception of the price/value relationship offered by your operation.
The price spread is defined as the range between the lowest and highest priced menu item.
Try to reduce the price spread.

18. Special Pricing Situations
Beverages at Receptions and Parties
Pricing beverages for open bar events can be difficult, since each customer group can be expected to behave somewhat differently when attending an open bar or hosted bar function.
Sales histories – can calculate average consumption
Then use the formula:
Product Cost + Contribution Margin Desired = Selling Price

19. Technology Tools
The mathematical computations required to evaluate the effectiveness of individual menu items and to establish their prices can be complex, but there are a wide range of software products available that can help you:
Develop menus and cost recipes.
Design and print menu “specials” for meal periods or happy hours.
Compute and analyze item contribution margin.

20. Technology Tools
Compute and analyze item and overall food cost percentage.
Price banquet menus and bars based on known product costs.
Evaluate the profitability of individual menu items.
Estimate future item demand based on past purchase patterns.
Assign individual menu item prices based on management-supplied parameters.

21. Summary Menu Formats Factors Affecting Menu Pricing
Assigning Menu Prices
Special Pricing Situations
Technology Tools