Overhead. Food portions. Ingredient costs. Salaries. When the fun of putting together a menu ends, your attention moves to restaurant menu pricing, and these points become the focus. Food costs tend to make up 30-35% of pricing on menus, leaving enough room to pay for expenses and, most importantly, to make a profit.
It’s a pricing model that works so well; it’s been made famous by celebrity chef Robert Irvine from RestaurantImpossible. In three days, Chef Irvine renovates a restaurant, retrains the staff, and, using the three to one pricing rule, transforms a slumping restaurant into one that makes a profit. The basic formula is as follows:
Food Cost + Labor + Business Expenses including Profit = Menu Price
While dining establishments worldwide have found success with this standard price analysis, there are definitely outliers. Some restaurant and café owners consider good manners to be as important as ingredient shopping, and others employ a pricing model that guarantees reservations will show up.
These atypical models are unusual and innovative, and they’re working like a charm. Below are three new charging models for restaurants, which factor more than profitability into menu prices.
The Etiquette Pricing Model
Rude customers, be gone! These restaurants want nothing to do with you. It would seem those coffee lovers are crankier than the average customer because two coffee shops (that we know of) have developed a pricing model to encourage better manners when ordering.
Across the pond, in France, a restaurant in Nice found it necessary to encourage diners to order coffees nicely. On a sign outside Le Petite Syrah, customers were shown a menu that requested the same ordering style as Cups’–only theirs was in French. Photos of their new menu pricing went viral online.
With an etiquette pricing model, it really does pay to be nice in Nice, France.
In Japan, customers are happy to pay more for a license to be rude at Konro-ya pub in Tokyo. While the initial goal was to get their bar patrons to act more friendly, the added profits aren’t a bad side-effect of changing their pricing model. Konro-ya has reported a steep incline in rude customers, who are having fun with being a jerk. They’ve also added a serve-yourself beer tap, which is much less than ordering a beer from a server, but still see customers placing orders rudely and willing to pay the price.
While the results for Le Petite Syrah weren’t shared publicly, customers at both examples took the new pricing models in good humor.
The It’s-Relative Pricing Model
Would you pay more for a dish at one location, when you know you can get the same dish at another location for cheaper? It’s a question that Sam Polk and David Foster, owners of Everytable, are finding out to answer to. So far, it’s yes.
In 2013, Polk founded a nonprofit called Groceryships to educate parents from low-income areas on better eating habits and the importance of getting nutritious foods. Common feedback was that no healthy, cheap fast-food options were available, and so McDonald’s became the best alternative.
Polk and Foster, two men with finance backgrounds, devised a strategy to combat this dining crisis: Offer a healthy menu of hot and cold dishes, with prices that are relative to other dining establishments in the area.
The first location of Everytable is in South Los Angeles, a neighborhood with a median income of $13,000 a year. Prices for food will not go over $4.
How is that possible?
Chefs will cook and package meals fresh into to-go containers every day in a central kitchen, making them available for immediate pickup. Since servers and seating space are not required, this model allows for two to three employees to run a location in a small storefront, and a greater percentage of the price to be redirected back into sourcing quality fresh ingredients.
In an effort to balance out some of the costs, a second was opened in an affluent neighborhood close to downtown LA. The menu will feature prices between $7 and $10, based on the income of residents and prices from neighboring restaurants.
Today, Everytable has eight locations and still strives to serve low-income areas with healthy food choices by pricing based on geographical income information.
“Each store is designed to be individually profitable,” explained Foster in an interview with NPR’s Here & Now. “At $4 per meal in South LA, we’re not making much money from each meal sold. But if we get enough people to come out — and we’re already seeing great traction — it will actually be profitable. The location downtown will also be profitable. So together they’re part of this company that’s working to improve access. The higher-priced location will help fund the growth of new locations in both markets.”
As a restaurant owner, location is a pivotal point in what you can charge for dishes. Think of the area surrounding your restaurant, and look at local market reports when to help determine the total cost for menu items.
The Ticketing Pricing Model
There is nothing more irritating to a restaurant than no-shows. Booking a reservation is similar to signing a contract, except that only the restaurant is harmed when the contract is broken. Larger restaurants, particularly chain restaurants, can afford the losses of no-shows, but smaller venues with restricted seating cannot. Even a table of four can make or break the success of a night for some restaurants, particularly if it’s reserved during peak hours.
To create some balance to the reservations agreement between diner and dining establishment, some restaurants have adopted a ticketing pricing model. Similar to how one purchases tickets to a movie, diners must first purchase their seats for dinner.
Nick Kokonas owns three restaurants in Chicago, and he first started ticketing customers at his high-end location Next for seats. Today, you will find that in order to make a reservation, you have to pay for a set dinner in advance, which can cost upwards of $3,000 depending on what is selected. Ever since Kokonas implemented the ticketing model, no-shows for reservations decreased to almost 1.5%.
Menu changes are easy to make with a restaurant mobile point-of-sale system.