Chapter 14
MENUS &
PRICING
Menu Development
 Menu planners must
know the establishment
operation.
 Defines purpose,
strategy, market, service,
and theme.
 Many operations use
special menus for meal
time, holidays and
planned events.
Menu Types:
 A la carte: menu items are
listed separately.
 Table d’hote: groups of items
are offered at a single price.
 Du jour: Daily Menu
 Limited: Quick-service, only
offer a few items.
 Cycle: Food items are repeated
after a set # of days.
 California: Lists on available
items at all times of the day.
Factors to consider in Menu Development
 Physical layout of the facility, included space for storage,






preparation, and service areas.
Skill level & #of the employees.
Food quality and availability.
Nutritional, physiological, social and psychological needs of
customers.
Guest expectations regarding the menu offerings & prices.
Food appeal, or the combined factors (appearance,
temperature, texture, consistency and flavor) that make
your food appealing.
Profit margin
About Menu pricing
 Price must cover costs: food, labor, rent, advertising
 Mark up is the difference between the cost of a




product and its selling price.
Use a low mark up = high volume
Use a high mark up = low volume
There are several different types of pricing strategies.
It is important to understand how customers
evaluate price and economic value.
Menu Pricing
 Value Perception
 Perception is reality
 Pricing Psychology
 Price endings of .99 more suited to qsr menus.
 0 and 5 endings more suited for full service menus
 Economic Influences
 Elastic vs. Inelastic
 Flexible vs. Inflexible
Value Perception
Cheap or Expensive?
Pricing Psychology
Economic Influences
1) When supply is limited,
prices tend to rise vs.
when supply is plentiful,
prices tend to drop.
2) When demand is high,
prices rise, when demand
is low, prices drop.
Note: Consumers may view price increase
negatively or an improvement in quality.
Pricing Strategies
 Status-quo pricing




Maintain competitive position.
Match prices for similar offerings.
Must have close attention to costs, prices
and actual profits.
All costs must be low to remain
competitive.
 Sales-Oriented pricing





Maximize sales volume not profit.
Coupons may increase sales volume.
Long-term = very competitive.
Product must be easily produced
Costs must be kept low.
 Profit – Oriented Pricing



Establishes a profit target
Cover investment costs
Works best w/ short term
Pricing Methods
 There are many methods of pricing




menu items.
Range= basic to complex.
Some methods are used only on a
few menu items such as beverages
are calculated differently than a
steak entrée.
It is recommended that different
pricing strategies be used
throughout your menu.
Prices must always be adjusted to
account for psychology pricing,
restaurant segment, the area of the
country and time of year.
Food Cost % Method
You set the % of menu price that the food
cost must be, and then calculate the
price that will provide this percentage.
Formula:
Item food cost / food cost % = Menu price
Food Cost Example
Steak
$3.83
Baked Potato
$0.49
Sour Cream
$0.22
Tossed Salad
$0.52
Dressing
$0.41
Onion Ring
Garnish
$0.39
Total
$5.86
Food Cost Example:
Cost for a Steak Entrée that includes a
baked potato with sour cream, tossed
salad w/ dressing, and onion ring
garnish, then the cost of each item
needs to be included in the item food
cost. The targeted food cost % is 33%
and the total cost of the entrée is
$5.86.
$5.86 / .33 = $17.76 = mathematical price
$17.95 = competitive, $18 = premium
Determine Menu Price: Using % Method
 The owner of Sally’s Steaks
wants to add a new chicken
dish to the menu in response to
customer requests. She has
determined that the food cost
of the proposed menu item,
including all the side items, is
$4.93.
 Her current food cost
percentage is 34%. Using the
food cost % method, determine
the mathematical price for the
new chicken entrée, then
suggest an actual menu price.
 Item food cost/food cost
% = Menu price
 $4.93 /.34 = $14.50
 $14.95 or $15.00
Pros/Cons

Accurate food cost % will differ for each menu
category: appetizers, salads, entrees, desserts,
beverages.

Can’t use the same food cost % for all menu items.
Pricing based on costs continued
 Pricing Factor or Multiplier:

This formula gives a factor by which a food cost is multiplied to get a selling price.
Formula: 100% / Desired food cost = Pricing Factor
Pricing factor x Food Cost = Mathematical Price
Example: Food cost is $2.73 and the desired food cost % is 35%.


100%/35%=2.86 factor
2.86 x $2.73 = $7.81
If you wanted to add labor cost at 65% with labor & food cost at $5.20:
Formula: 100%/ Desired labor cost = factor
Labor factor x labor & food cost = mathematical price
 100%/65% = 1.54
 1.54 x $5.20 = $8.01 or $8.00
Pricing Factor Method Example
 The desired food cost percentage for your
establishment is 28% and the food cost is $1.75.
Your labor cost percentage is 45% and the combined
food cost is $3.80.
 Using the pricing factor method determine your
selling price with only using the food cost and
calculate a new selling price including the labor cost.
How much would we be losing with out including
labor?
 Food cost Price: ______
 Labor cost Price: _____
 Labor Loss:
_______
Pricing Factor Answer
Formula: 100% / Desired food cost = Pricing Factor
Pricing factor x Food Cost = Mathematical Price
100%/28% = 3.57 factor
3.57 x 1.75 = $6.25 mathematical price
Formula: 100%/ Desired labor cost = factor
Labor factor x labor & food cost = mathematical price
100%/45% = 2.22
2.22 x 3.80 = $8.44 mathematical price = $8.99 or $9.00
Potential Loss: $2.19
Prime Cost Pricing
A selling price by creating an desired combined food cost & direct labor cost .
Prime Cost Formula:
Step 1: food + Direct Labor = Prime Cost
Step 2: Prime cost/ # portions = Prime cost per portion
Step 3: Prime Cost per portion/ Desired Prime cost %= Selling Price
Recipe: Determine a menu price using the following information and my desired
prime cost is 60%
Step 1: Food Cost $112.62 + Labor $55.47= $
Step 2: $168.09/30 portions = $5.60 ea.
Step 3: $5.60/.60 = $9.33 or $9.50 or $9.99/$10 menu price
Prime Cost Pricing
using employee time/cost
Example:
60% is the desired prime cost percentage and a chef
takes 1.5 hours to make a recipe that gives 30 portions.
Step 1: Food Cost: The cost of a recipe that makes 30
portions $145.59
Step 2: Labor Cost: The chef makes $15.00 per hour; 1.5 x
$15.00=$22.50
Step 3: Combined Cost: $145.59 + $22.50 = $168.09
(Prime Cost)
All or Actual Cost Pricing
 Uses Combined Food and Labor Costs:
 Very similar to prime cost pricing
 All or Actual Cost Pricing






Food Cost
Labor Cost
Operating Cost
Total
Profit
Total
28%
30%
25%
83%
17%
100%
$4.12
$4.41
$3.68
$12.21
$ 2.50
$14.71 or $14.75
Pricing Pitfalls
 1. Pricing should include more
than food cost and be based on
other costs such that are both
variable and fixed.
 2. Foodservice pricing should
not ignore the economic laws of
supply and demand.
 3. Value perception on the part
of the patrons in equating price
to value of a menu item should
have a greater emphasis in
pricing.
 4. More attention needs to be
given to market information in
establishing prices.
Menu Analysis
 Items must be changed if they
are not producing sales.
 Items with high sales volume
are called LEADERS
 Items with low sales volume are
called LOSERS
 Menu development is actually a
continual process prices and
items are almost never
considered final.
Methods:
 Keep a count of items
sold per period
 Conduct a subjective
evaluation where
management analyze the
menu.
 Develop popularity
index.
 Evaluate profits.