Food & Beverage Cost Control, 5th edition Dopson, Hayes, & Miller @2011 John Wiley & Sons

1. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Chapter 6
Managing Food and
Beverage Pricing

2. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Main Ideas
• Menu Formats
• Factors Affecting Menu Pricing
• Assigning Menu Prices
• Special Pricing Situations
• Technology Tools

3. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Menu Formats
• Menus – standard, daily or cycle.
• Menu “tip-ons,” - smaller menu segments clipped on
to more permanent menus.
• The standard menu is fixed day after day.
• The daily menu changes every day.
• A cycle menu is a menu in effect for a specific time
period. The length of the cycle refers to the length of
time the menu is in effect.
• Daily or weekly menu specials provide variety, low-
cost raw ingredients, carryover utilization, or test-
market potential for new menu items.

4. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Figure 6.1 Sample Cycle Menu Rotation
Day Cycle
1 - 7 A
8 - 14 B
15 - 21 C
22 - 28 D
29 - 35 A
36 - 42 B
43 - 49 C
50 - 56 D
57 - 63 A

5. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Factors Affecting Menu Pricing
• Total revenue is generated by the following formula:
• As price increases, the number of items sold will
generally decrease.
Price x Number Sold = Total Revenue

6. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Figure 6.2 Alternative Results of Price Increases
Old Price New Price Number
Served
Total Revenue Revenue Result
$1.00 200 $200.00
$1.25 250 $312.50 Increase
$1.25 200 $250.00 Increase
$1.25 160 $200.00 No Change
$1.25 150 $187.50 Decrease

7. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Factors Affecting Menu Pricing
1. Local competition
2. Service levels
3. Guest type – price sensitivity
4. Product quality
5. Portion size
6. Ambience
7. Meal Period
8. Location
9. Sales mix

8. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Factors Affecting Menu Pricing
• Sales mix refers to the specific menu items selected
by guests.
• Sales mix will most heavily influence the menu
pricing decision
• Price blending refers to the process of pricing
products, with very different individual cost
percentages, in groups with the intent of achieving a
favorable overall cost situation.

9. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Figure 6.3 Unblended Price Structure
Texas Red’s Burgers
Item Item Cost
Desired
Food Cost
Proposed
Selling Price
Hamburger $1.50 40% $3.75
French Fries 0.32 40 0.80
Soft Drinks (12oz.) 0.18 40 0.45
Total 2.00 40 5.00
Figure 6.4 Blended Price Structure
Texas Red’s Burgers
Item Item Cost
Proposed
Food Cost %
Proposed
Selling Price
Hamburger $1.50 60.2% $2.49
French Fries 0.32 21.5 1.49
Soft Drinks (12oz.) 0.18 16.5 1.09
Total 2.00 39.4 5.07

10. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Figure 6.5 Sample Sales Mix Data
Texas Red’s Burgers
Total Sales: $ 449.25 Guests Served: 100
Total Food Cost: $ 180.20 Food Cost %: 40.1%
Item
Number
Sold
Item
Cost
Total
Food
Cost
Selling
Price
Total
Sales
Food
Cost %
Hamburger 92 $1.50 $138.00 $2.49 $229.08 60.2%
French Fries 79 0.32 25.28 1.49 117.71 21.5
Soft Drink (12 oz.) 94 0.18 16.92 1.09 102.46 16.5
Total 180.20 449.25 40.1

11. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Assigning Menu Prices
• Product Cost Percentage/Pricing Factor
• Contribution Margin

12. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Figure 6.6 Pricing-Factor Table
Desired Product Cost % Factor
20 5.000
23 4.348
25 4.000
28 3.571
30 3.333
33⅓ 3.000
35 2.857
38 2.632
40 2.500
43 2.326
45 2.222

13. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Assigning Menu Prices
• The formula for computing food cost percentage is as
follows:
• This formula can be worded somewhat differently for
a single menu item without changing its accuracy.
Consider that:
Cost of Food Sold
Food Sales = Food Cost %
Costs of a Specific Food Item Sold
Food Sales of that Item = Food Cost % of That Item

14. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Assigning Menu Prices
Product Cost Percentage
• The principles of algebra allow you to rearrange the
formula as follows:
Cost of a Specific Food Item Sold
Food Cost % of That Item
= Food Sales (Selling Price) of That Item

15. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Assigning Menu Prices
Pricing Factor
• A cost factor or multiplier can be assigned to each
desired food cost percentage as follows:
• The pricing factor when multiplied by any product
cost will yield a selling price that is based on the
product cost. The formula is as follows:
1.00
Desired Product Cost % = Pricing Factor
Pricing Factor x Product Cost = Menu Price

16. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Assigning Menu Prices
Contribution Margin
• 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 is computed as follows:
Selling Price – Product Cost = Contribution Margin

17. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Assigning Menu Prices
• When this approach is used, the formula for
determining selling price is:
• Goal is setting a good price/value relationship in the
mind of the customer.
• The selling price selected must provide for
predetermined operational profit.
Product Cost + Contribution Margin Desired = Selling Price

18. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Assigning Menu Prices
• The Leadership in Energy and Environmental Design
(LEED) rating system developed by the U.S. Green
Building Council (USGBC), evaluates facilities on a
variety of standards.
• The rating system considers sustainability, water use
efficiency, energy usage, air quality, construction and
materials, and innovation.

19. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Special Pricing Situations
• Coupons are a popular way to vary menu price.
1. Buy one, get one free, or
2. Some form of restriction is placed on the coupon.
• Coupons have the effect of reducing sales revenue
from each guest in the hope that the total number of
guests increases to the point that the total sales
revenue increases.

20. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Special Pricing Situations
• Value Pricing refers to the practice of reducing
prices on selected menu items in the belief that total
guest counts will increase to the point that total sales
revenue also increases.
• Bundling refers to the practice of selecting specific
menu items and pricing them as a group in such a
manner that the single menu price of the group is
lower than if the items in the group were purchased
individually.

21. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Special Pricing Situations
• The difficulty in establishing a set price for either a
salad bar or buffet is that total portion cost can vary
greatly from one guest to the next.
• The secret to keeping selling price low for a salad bar
or buffet is to apply the ABC method. A items
should comprise no more than 20% of the total
product available; B items, no more than 30%; and C
items, 50%.

22. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Special Pricing Situations
• Use the following formula to determine buffet
product cost per guest:
Total Buffet Product Cost
Guests Served = Buffet Product Cost per Guest

23. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Figure 6.7 Salad Bar or Buffet Product Usage
Unit Name: Lotus Gardens Date: 1/1 (Dinner)
Item Category
Beginning
Amount
Additions Ending
Amount
Total
Usage
Unit
Cost
Total
Cost
Sweet &
Sour
Pork
A 6 lb. 44 lb. 13 lb. 37 lb. $4.40/lb. $162.80
Bean
Sprouts
B 3 lb. 17 lb. 2 lb. 18 lb. 1.60/lb. 28.80
Egg
Rolls
B 40 each 85 each 17 each 108
each
0.56
each
60.48
Fried
Rice
C 10 lb. 21.5 lb. 8.5 lb. 23 lb. 0.60/lb. 13.80
Steamed
Rice
C 10 lb. 30 lb. 6.5 lb. 33.5
lb.
0.40/lb. 13.40
Wonton
Soup
C 2 gal. 6 gal. 1.5 gal. 6.5
gal.
4.00/gal. 26.00
Total
Product
Cost
305.28
Total Product Cost: $305.28
Guests Served: 125 Cost per Guest: $2.44

24. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Special Pricing Situations
Bottled Wine
• How you decide to price the bottled wine offerings on
your menu will definitely affect your guest’s
perception of the price/value relationship offered by
your operation.
• The price spread is defined as the range between the
lowest and highest priced menu item.
• Try to reduce the price spread.

25. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Special Pricing Situations
Beverages at Receptions and Parties
• Pricing beverages for open bar events can be difficult,
since each customer group can be expected to behave
somewhat differently when attending an open bar or
hosted bar function.
• Sales histories – can calculate average consumption
• Then use the formula:
Product Cost + Contribution Margin Desired = Selling Price

26. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Figure 6.8 Beverage Consumption Report
Event: Gulley Wedding Date: 1/1/
Unit Name: The Carlton Hotel
Beverage
Type
Beginning
Amount Additions
Ending
Amount
Total
Usage
Unit
Cost
Total
Cost
Liquor A
B
C
D
E
F
G
Beer A
B
C
D
E
Wine A
B
C
D
Other:
Champagne:
A. Sparkling
B. Sparkling
Pink
8 bottles
8 bottles
24
24
9
11
23
21
6.00/btl
9.00/btl
$ 138.00
189.00
Total
Product
Cost
327.00
Total Product Cost: $327.00
Guests Served: 97 Cost per Guest: $3.37
Remarks: Mild group; very orderly; no problems.

27. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Technology Tools
• The mathematical computations required to evaluate
the effectiveness of individual menu items and to
establish their prices can be complex, but there are a
wide range of software products available that can
help you:
1. Develop menus and cost recipes.
2. Design and print menu “specials” for meal
periods or happy hours.
3. Compute and analyze item contribution margin.

28. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Technology Tools
4. Compute and analyze item and overall food
cost percentage.
5. Price banquet menus and bars based on known
product costs.
6. Evaluate the profitability of individual menu
items.
7. Estimate future item demand based on past
purchase patterns.
8. Assign individual menu item prices based on
management-supplied parameters.

29. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th
Edition
Dopson, Hayes, & Miller
Summary
• Menu Formats
• Factors Affecting Menu Pricing
• Assigning Menu Prices
• Special Pricing Situations
• Technology Tools