GOOD BUSINESS price for profits
price for profits
Rising operational costs siphon away revenue. Find out the
menu and pricing strategies others successfully employ. BY JODY SHEE
t
he positive Restaurant Performance Index of the past few months
points to certain industry optimism. But what about those rising commodity/
try tiered pricing
CLOCKWISE FROM TOP LEFT: 1) Jim
‘N Nick’s Bar-B-Q makes more money
from salads since the chain switched to
meatless base salads with add-on meat
for an extra charge. 2) Monday night
at Claddagh Irish Pub features buy one
fish and chips, get one free, drawing
in more customers who will likely buy
drinks. 3) At Second Home Kitchen &
Bar, lamb carnitas with lamb shoulder
confit are a profitable menu item thanks
to in-house butchering of lamb halves
or hindquarters.
As former managing director for Lehman Brothers’ investment banking division, David
Kostman was all about menu and pricing strategies from the day he opened the first Nanoosh
Mediterranean Hummus Bars & Counters in New York as chief executive officer four years
ago. Now there are three company-owned and one franchised unit, all committed to organic
ingredients and serving the busy New York/Manhattan areas.
“We originally designed the menu in a way that would allow a good gross margin,” Kostman
says. The concept offers variety (soups, salads, hummus plates, wrap platters/bowls, desserts
and drinks), but with limited ingredients. The wraps, salads and hummus plate, for example,
use the same ingredients, ensuring limited waste.
Yet in spite of his well-thought-through strategy, Kostman determined there was a way to
make it more profitable with his own version of tiered pricing in the restaurants, which
offer dine-in and to-go services. Kostman realized that those dining in have a different price
sensitivity than those who come to grab something quick and go back to their office desks. So
in September 2011, he started two-tier pricing, with those ordering food to go paying 10% to
13% less and receiving slightly smaller portion sizes.
18 THE NATIONAL CULINARY REVIEW • MAY 2012
PHOTO CREDIT: Clockwise, from top left: 1) Jim ‘N Nick’s Bar-B-Q/Angie Mosier; 2) Claddagh Irish Pub; 3) Sage Restaurant Group
food costs and runaway gas prices, with resulting increased transportation costs?
You could just raise menu prices to offset the costs. But not really. Some 63% of consumers
surveyed for Mintel’s Dining Out—U.S., January 2012 report said it is too expensive for them
to eat out regularly, and 23% said they would be spending less at restaurants in 2012 than they
did in 2011. Consumers are a bit skittish when it comes to price.
Operators of all segments are looking for remedies for price resistance. Restaurants such
as Applebee’s, Chili’s and Morton’s The Steakhouse have found that they can draw in more
customers and increase profits if they ensure that the menu offers items and prices that appeal
to the cost-conscious as well as to those inclined to splurge. No more “2 for $20” limited-time
meal offers. Now the deals are permanent.
Wendy’s has become well-known in industry circles for its tiered-pricing strategy, offering
value, mid-level and premium products and pricing. Others are taking that path, as well.
Your colleagues have wrestled with similar menu and price considerations and have come
up with solutions that work for them and may work for you.
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GOOD BUSINESS price for profits
“
Design the menu to be cost-efficient.
”
Make sure there’s enough variety,
but with a small amount of ingredients
so there’s little waste. It’s the key driver
behind menu development.
DAVID KOSTMAN, NANOOSH MEDITERRANEAN
HUMMUS BARS & COUNTERS, NEW YORK
Those who dine in know they are paying about $1 to $1.50
more than those who order from the to-go menu, but it doesn’t
bother them, Kostman says, noting that it was uneventful when
the restaurants made the change. “The results of implementing
tiered pricing are hard to quantify, but it helped increase the
to-go business,” he says.
To determine prices, Kostman advises grasping consumers’
price sensitivities in the local environment, considering
competition and socioeconomics.
ordering salads, yet the number of salad orders with protein
didn’t drop off, leading to incremental sales. He also realized
that the change better fit the needs of vegetarians, and thus he
broadened his customer base and eliminated the veto factor.
Interestingly, buy-one-get-one price promotions are the
ticket to higher profits for Ciaran Dunne, director of operations
for the 15 locations of Claddagh Irish Pubs, with headquarters
in Solon, Ohio. The chain is known for its fish and chips, so
Monday night is buy one, get one free. Tuesday is buy one
burger, get one for $2, and Wednesday is buy any pie (as in
shepherd’s pie), get one for $2. In a bold move, Thursday night
features items on the late-night menu of flatbreads and thincrust pizzas free (from 9 p.m. to 1 a.m.).
“
2 0 THE NATIONAL CULINARY REVIEW • MAY 2012
”
Then manage costs to
those goals (food, supplies,
labor, advertising, etc.). “Most
restaurants pass the cost of
their inefficiency on to the
customer.” Try to have a minimum
amount of inefficiency so you don’t
have to raise prices.
play to the price psyche
Though it’s best not to raise prices on center-of-the plate
items for which guests judge the value, appetizers, desserts
and bar drinks present better price-increase possibilities,
says Nick Pihakis, owner of Birmingham, Ala.-based Jim ‘N
Nick’s Bar-B-Q with 27 restaurants across several states. He
adds that the bar in particular can be profitable considering
the labor efficiency of one person making many drinks in a
short amount of time. “You can raise the price of a $5 drink to
$5.50, and the customer probably won’t care.”
Raised appetizer prices are hardly noticed considering
that guests often share them among the group and split the
cost, Pihakis says.
“Sales cure everything,” is Pihakis’ motto. He discovered
that some careful menu reengineering quadrupled his
salad sales. The restaurants previously offered various salads
with protein on them, such as grilled chicken salad; Greek
salad with a choice of meats; fried chicken tender salad; and
chopped salad with fresh vegetables and smoked chicken.
He found that before, if customers wanted a salad and
didn’t want meat, they either ordered the house salad or the
chopped salad, even though they didn’t want the meat that
came with it. “Those who didn’t want meat felt they were
getting ripped off,” Pihakis says. So he took the protein off
the salads, lowered the base price, and began charging extra
for added meat (bringing the price back up to the original
salad price). He discovered that many more customers began
Set sales goals. If you aim at nothing,
you’ll hit it every time.
NICK PIHAKIS, JIM ‘N NICK’S BAR-B-Q,
BIRMINGHAM, ALA.
It’s all about driving traffic in for the deals with the hope
(proven by experience) that guests will order drinks. The $2
price on the second items on Tuesday and Wednesday nights
is merely to cover the food cost, Dunne says, noting that it has
been quite successful. Because it is a pub, it’s not a stretch
to anticipate that guests will order drinks, which have much
higher margins. “It warrants giving a second [food] item at
cost price,” he says.
“
Stock management is the new margin.
”
You can’t afford waste.
Manage plate cost by managing
people better. Make sure they
weigh everything to assure
proper plate yield. Then, stand
in the kitchen and watch what
comes back. If there’s a pattern,
adjust the portion size.
CIARAN DUNNE, CLADDAGH IRISH PUBS,
SOLON, OHIO
“
Look at all the items you sell from a
contribution-margin perspective.
”
There are computer programs that
help do this. Look for the stars on the
menu with the highest dollar contribution,
which indicates they are popular and thus
high-volume items. Increase the price
on those items incrementally to see if
you can get away with it without much
customer pushback. This leads to more
contribution margin from more high sales
volume items.
PETER KARPINSKI, SAGE RESTAURANT GROUP, DENVER
His other profit-building strategy is not to raise prices but
to incentivize servers, whom he calls “sales people,” to upsell.
The easiest way to turn an $8 burger into a $9 sale is to
encourage guests to order the seasoned sour cream for only
$1. The Irish nachos come with sour cream and guacamole,
but the server likely will suggest that the spicy mayonnaise
also works well for only $1 extra. The fish and chips comes
with 1 oz. of tartar sauce and a 2 oz. coleslaw. Servers suggest
a second portion of either for a small charge. “We ask the staff
to read the guest and see if they can sell them something else
at the table,” Dunne says.
While there are small weekly prizes at each location for
servers who have increased the guest average check the most,
once a month an overall winner is awarded a big-ticket item,
such as an iPod, an e-notebook or some other gadget.
rethink value and the menu
Guests come in with their own perceptions of how much
menu items should cost based on their experience at other
restaurants. Menu prices often are dictated by the competitive
climate and, thus, the price point at which customers will push
back, says Peter Karpinski, co-founder/chief operating officer
for Sage Restaurant Group, Denver, operating nine restaurant
concepts across the U.S.
Therefore, he looks to offer menu items that other area
restaurants don’t sell so guests can’t compare the price. For
example, at Second Home Kitchen & Bar in Denver, the
menu features lamb meatballs, which come with spicy San
Marzano tomatoes, ricotta gremolata, Parmigiano-Reggiano
and housemade flatbread for $14.
To become even more profitable, the restaurant group has
joined a buying group (Rockville, Md.-based Avendra) to
increase its buying power, and started buying full halves or
hindquarters of beef, poultry, lamb or goat and butchering inhouse for a better cost of goods. Then the chefs build the menu
around the secondary cuts and trimmings, Karpinski says.
This has led to such unique-to-the-area, profitable dishes
as lamb carnitas with lamb shoulder confit, housemade tortilla
chimichurri, pico de gallo cilantro and lime crema for $20.
Another is braised lamb stroganoff with bucatina, Hazel Dell (Fort
Collins, Colo.) wild mushrooms and house flatbread for $20.
Chicago’s Palmer House Hilton also leverages buying power
with the use of Hilton’s Supply Management Procurement arm,
which evaluates buying contracts yearly rather than every
three to five years, as it formerly did, says the hotel’s executive
chef Stephen Henry. He oversees the kitchen, banqueting, a
restaurant, a bar, the employee cafeteria and room service.
The hotel has started buying in bulk to save on packaging
costs that are added to the price of goods.
Henry notes that eliminating waste is another way to
manage costs and improve profitability, especially in the
banqueting operation. Palmer House Hilton operates a waste
program that logs how much of each item is prepared, the
weight that goes out of the kitchen and the weight of what
returns to the kitchen as waste. Through this process, Henry
discovered that the previously popular raspberry Danish
went out of favor.
local seasonal product,
“ Useand fresh,
plenty of it.
”
Prices are lower when
tomatoes or apples are
in season. It also saves on
delivery costs, which are going
up with the price of gas.
STEPHEN HENRY, PALMER HOUSE
HILTON, CHICAGO
“Food trends change. We have to know them ourselves
so we aren’t putting things on the menu that are not trendy
anymore and thus wasted,” he says. Now guests are going for
croissants and bran muffins.
JODY SHEE, A N OL AT HE, K A N.-BA SED FREEL A NCE W RIT ER A ND EDIT OR, PRE V IOUSLY
WA S EDIT OR OF A FOODSERV ICE M AG A ZINE. SHE H A S 20 Y E A RS OF FOOD-W RITING
E X PERIENCE A ND W RIT E S T HE BL OG W W W.SHEEFOOD.COM.
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