How to Manage Cost in your Hotel- Cost Control #6 by Dino Leonandri

1. Managing Food and Beverage
Pricing
By : Dino Leonandri

2. Menu formats in foodservice establishments generally fall into
one of the following three major categories:
1. Standard menu
The standard menu is the same every day. It can be printed
and handed to guests, displayed in the operation, or recited
by service staff. It is the menu format most common in
commercial restaurants
2. Daily menu
In some restaurants, you might elect to operate without a
standard menu and, instead, implement a daily menu, that is,
a menu that changes every day. This format is especially
popular in some upscale restaurants where the chef’s daily
creations are viewed with great anticipation, and even some
awe, by eager guests
3. Cycle menu
A cycle menu is a menu that is in effect for a specific time
period

3. FACTORS AFFECTING MENU PRICING
• Revenue management
Factors Influencing Menu Price
1. Economic conditions
2. Local competition
3. Service levels
4. Guest type
5. Product quality
6. Portion size
7. Ambience
8. Meal period
9. Location
10.Sales mix

4. ECONOMIC CONDITIONS
The economic conditions that exist in a local area or even in
an entire country can have a significant impact on the prices
that restaurant managers can charge for their menu items.
When an economy is robust and growing, managers
generally have a greater ability to charge higher prices for the
items they sell
LOCAL COMPETITION
While the prices charged by competitors may be important,
this factor is often too closely monitored by the typical
foodservice operator. It may seem to some managers that the
average guest is vitally concerned with low price and nothing
more. In reality, small variations in price generally make little
difference to the buying behavior of the average guest.

5. SERVICE LEVELS
The service levels that an operation provides its guests
directly affect the prices the operation can charge. Most
guests expect to pay more for the same product when service
levels are higher
GUEST TYPE
All guests want good value for their money. But some guest
types are simply less price sensitive than others. The
question of what represents good value varies by the type of
clientele
PRODUCT QUALITY
In nearly every instance, a guest’s quality perception of any
specific menu item offered for sale in the foodservice
business can range from very low to very high. These
perceptions are the direct result of how the guest views a
restaurant’s menu offerings.

6. PORTION SIZE
Portion size plays a large role in determining menu pricing.
Portion size is an often-misunderstood concept, yet it is
probably the second most significant factor (next to sales mix)
in overall pricing
AMBIENCE
If people ate only because they were hungry, few restaurants
would be open today. People eat out for a variety of reasons,
some of which have little to do with the food itself
MEAL PERIOD
In some cases, diners expect to pay more for an item served
in the evening than for that same item served at a lunch
period. Sometimes this is the result of a smaller “luncheon”
portion size, but in other cases the portion size, as well as
service levels, may be the same in the evening as earlier in
the day.

7. LOCATION
Location can be a major factor in determining price. One
needs look no further than America’s many themed
amusement parks, movie theaters, or sports arenas to see
evidence of this.
SALES MIX
Of all the pricing-related factors addressed thus far, sales mix
most heavily influences the menu pricing decision; just as
guest purchase decisions will influence total product costs

8. C o f f e e P o r t f o l i o D e s i g n e d
ASSIGNING MENU PRICES
PRODUCT COST PERCENTAGE
This method of pricing is based on the idea that the cost
of producing an item should be a predetermined
percentage of the item’s selling price.
As was illustrated earlier in this chapter, if you have a
menu item that costs $1.50 to produce, and your desired
cost percentage equals 40 percent, the following formula
can be used to determine what the item’s menu price
should be

9. C o f f e e P o r t f o l i o D e s i g n e d
PRODUCT CONTRIBUTION MARGIN
Some foodservice managers prefer an approach to menu
pricing that focuses on each of their menu item’s
contribution margin rather than their product cost
percentages.
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, then, is the
amount that a menu item “contributes” to pay for labor and
all other expenses and provide for a profit.
Thus, if an item sells for $3.75 and the product cost for
this item is $1.50, the contribution margin is computed as:

10. SPECIAL PRICING SITUATIONS
Some pricing decisions faced by foodservice managers call
for a unique approach. In many cases, pricing is used as a
way to influence guests’ purchasing decisions or to respond
to particularly complex situations.
The following are examples of these special pricing situations:
1. Coupons
2. Value pricing
3. Bundling
4. Salad bars and buffets
5. Bottled wine
6. Beverages at receptions and parties

11. COUPONS
Coupons are a popular way to vary menu price. Essentially,
there are two types of coupons in use in the hospitality
industry.
The first type generally allows guests to get a free item when
they buy an additional item.
This buy one, get one (BOGO) approach has the effect of
reducing by 50 percent the selling price of the couponed item.

12. VALUE PRICING
Value pricing refers to the practice of reducing prices on
selected menu items in the belief that, as in couponing, the
total number of guests served will increase to the point that
total sales revenue also increases.
BUNDLING
Bundling refers to the practice of selecting specific menu
items and pricing them as a group so that the single menu
price of the group is lower than if the items in the group were
purchased individually
SALAD BARS AND BUFFETS
The difficulty in establishing one set price for either a salad
bar or a buffet is that the amount eaten and, thus, the total
serving costs incurred by an operation will vary from one
guest to the next.

13. SALAD BARS AND BUFFETS
The difficulty in establishing one set price for either a salad
bar or a buffet is that the amount eaten and, thus, the total
serving costs incurred by an operation will vary from one
guest to the next.

14. C o f f e e P o r t f o l i o D e s i g n e d
BOTTLED WINE
Few areas of restaurant industry pricing create more
controversy than that of pricing wines by the bottle.
After reviewing the selling prices established using a
product cost percentage approach, They decide that they
would like to explore the contribution margin approach to
wine pricing.
therefore computes the contribution margin
(Selling price – Product cost = Contribution margin) for
each wine They sell and finds the following results:

15. Thank You
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