In Part 1 we discussed the customer’s tendencies and habits in a difficult economy. Now we need to examine how restaurant owners and managers need to change their thinking to match the consumer’s outlook.

Almost from the day an entrepreneur gets into the restaurant business, the term “margin” is tossed around freely. In the hotel, institutional and chains, the margin between food cost and selling price becomes fixed as the way to price the menu item. Everything is based on an acceptable percentage to maintain profitability. Independent restaurant owners need to re-think this process. Independents don’t have the luxury of a captive market like hotels, hospitals, schools and other foodservice operations that have fewer competitive forces and customers who can opt for convenience as opposed to price or value.

When tweaking your menu for consumer trends, balance is still a concern. You need to have items that will allow the diner to choose lower priced entrees  if that is their mood, while not deviating from your theme or concept. However, pricing becomes an opportunity to look at total plate profits as opposed to just a particular margin goal. For instance, if you are a steak house and price a New York strip dinner at $23.95, you may have costs for the total plate in the range of $11 to $12. You plate profit will be $11 to $13.

When looking at a lower price point for a new menu item or two, consider plate cost and profit rather than just margins. An example could be a Blackened Chicken Breast Fettuccine that has a cost somewhere around $2.50 to $3.50. Priced at $15, you will have about the same plate profit as the New York strip and be offering the diner a choice that is almost $8 less than the extravagant steak. It’s perception that counts. Do you care which dish your customer orders? Probably not.

A customer who orders a generous portion of a Pot Roast Feature with potatoes, onions and carrots can bring the same dollar amount to your bottom line as a lobster dinner. Bacon wrapped pork tenderloin medallions with a red cabbage and apple chutney can be as profitable as that fisherman’s platter at a much lower price. That grouper sandwich at $11 is no more profitable than a grouper cheek Po Boy. Same fish, different cuts and sizes. Turn your nose up at chicken livers if you must, but one of our units recently sold twenty pounds of chicken livers on a featured special in one night. The cost - $.80 a pound! The price $14. Comfort food right out of the baby-boomer’s childhood, but I doubt we could sustain those sales for a long period.

The keys to implementing this strategy are;

• Meet with your suppliers. They can offer insight into product alternatives and hints at what others are doing.
• Look at the lower cost items in your pantry rather than the normal routine of controlling the top 20% of your purchased supplies.
• Use the Internet to search for ideas using keywords like rice, pasta, beans, chicken and pork as ingredients.
• Time is not on your side. Do it now, while the consumer’s plight at the grocery store is fresh in their mind. Don’t lose guests because you failed to respond.

Creativity and spending time focusing on lower cost protein items will give both you and the consumer reasons to stay comfortable in a difficult economic climate.

Larry Edger, Author

The Restaurant Ebook 

It’s clear 2008 will challenge even the best restaurant owners. Prices are rising faster than operators can respond. Cost controls  are essential, but how does the restaurateur get ahead of the trends? How can you adjust menu prices before the increases hit your bottom line because you are retroactive to the suppliers’ charges?

Here are some guidelines.

• First, check our commodity trends link in restaurant resources section. Weekly visits will give you an idea of where prices for beef, pork, chicken and dairy products are headed.
• Second, many major suppliers have a Trend Report that they will release to customers. These releases report notices of price increases from processors, manufacturing representatives and other purveyors.
• Third, try to negotiate locked in prices from any suppliers you can. Many will hold pricing for items that you can anticipate usage for the next 90 days.
• Fourth, listen to stock market reports and commodity prices. If a bushel of corn has an extended upward trend, you are going to feel it. If pork bellies look like the they are making a move, you are going to see your prices going up.
• Fifth, use common sense. If wheat and flour are increasing, bread is going up. If sugar takes a jump, desserts are going to follow suit. Oil prices will effect any petroleum products used in manufacturing everything from trash bags to portion cups.

Take these five steps and review your menu every month. You can stay ahead of the game and keep those numbers in the black.

 Larry Edger, Author

The Restaurant Ebook