Pricing is one of the most important aspects of restaurant management. As McKinsey & Co. has stated, “Pricing is by far the biggest tool for earnings improvement.” Thus, raising your restaurant prices should be based on good information and carefully planned strategies.
How Many Restaurants Raised Prices in 2023?
According to a survey conducted by Restaurant365, more than 82% of U.S. restaurant operators raised menu prices in 2023. That survey indicated that more than 61% of U.S. restaurant operators expected to raise prices in 2024. Raising your restaurant prices is clearly not an anomaly.
Inflation’s Impact on Restaurant Prices
It is reported that in the last four years, the following cost increases have been experienced across the restaurant industry: food costs +29%, supplies +20%, occupancy +12%, labor +31%, credit card swipe fees +32%, and utilities +16%. Without raising menu prices to deal with increasing costs, absent a major surge in sales, restaurants could barely survive or suffer significant losses. Thus, as costs generally continue to increase, raising your restaurant prices typically becomes a necessity.
6 Considerations When Raising Your Restaurant Prices
Consider raising your restaurant prices when:
- Your operating costs, especially food and labor costs, have gone up to the point that if you don’t raise prices, you won’t survive.
- You are barely profitable.
- You know that operating costs are going to increase, so you can implement price increases to maintain profitability and business health.
- You are so busy that you can increase prices without negatively impacting customer perceptions or reducing customer counts.
- Your prices are lower than competitors’ prices, and you want to avoid a perception of lower quality.
- The market will bear it, and customers expect it.
How to Increase Restaurant Prices
Raising your restaurant prices should be based on several considerations. First, keep a close eye on your costs, both fixed and variable. Measure current costs carefully and watch for potential cost increases. Second, be honest with yourself. Understand your current food and service quality and customer reputation to know how much you could increase prices without customer backlash. Third, do ongoing research to understand your competitors’ pricing and market position. Fourth, evaluate your menu. Are there items that should be dropped or items that should be upgraded or repositioned? Evaluate how much you can raise prices for each item on the menu.
Fifth, know that there is pricing flexibility: delivery prices are expected to be higher than on-premises prices, and you can increase prices seasonally and even adjust your menu seasonally to secure higher menu profits. Sixth, be sure to adjust prices based on accurate cost and movement data. Seventh, price strategically. Increase prices to make them less visible psychologically. For example, change the price from $10.99 to $11.19 instead of $11.25. Use the 80/20 rule to determine which items to increase. Eighth, don’t rush into pricing actions and don’t raise prices blindly across the board.
Seek Professional Accounting Assistance
Contact Irongate Financial Partners, serving small businesses in the Lowcountry of South Carolina. We provide bookkeeping, financial analysis, and outsourced accounting services. Some of our major client categories include construction companies, restaurants, HVAC and home services companies, and medical practitioners. Our aim is to empower growing small businesses with accounting and financial insights and services that otherwise might be out of reach.