Are higher menu prices the best way to maximize margins?

Although there are signs that inflation is cooling, restaurants are still on the road to recovery, with many continuing to raise their prices to recoup higher costs from rent, food prices, labour, and more. As the end of the year approaches, can restaurants continue to raise prices into 2024 or will consumers start to push back?

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According to Technomic’s newest insights, 89 per cent of operators plan to raise prices in the next three months to try and maximize margins, but  48 per cent of consumers will stop ordering from restaurants where the prices continue to increase. In fact, the study shows that 23 per cent of consumers would stop going to a restaurant altogether if the prices were raised by even a dollar. So, how can restaurants walk the line to make up costs and build the bottom line, while keeping customers coming back?

Some experts suggest that simply cutting menu items with the lowest margins is the answer, but there are a few factors to consider when mixing up your menu.

If it’s all number-based, customer sentiment is ignored, and regulars returning for their favourite dishes may become frustrated when they are no longer on the menu. Customer relationships play a crucial role in loyalty; knowing what your customers want can help restaurateurs make business decisions that keep customers happy and encourage return visits. Technomic suggests that it goes even deeper than that. If, for example, a menu item is scheduled for removal because of its low margin and small order rate, it’s still important to consider who is ordering that dish. It is a far more valuable menu item if it is ordered by regular customers whose loyalty is important to your bottom line. Does this item drive traffic? This is something that must be considered to avoid mismanaging your menu.

Part of the process needs to be adding menu items that have higher profits, but operators need to look at potential popularity, along with whether adding an item could cannibalize the volume of another menu item. Along with ingredient cost and labour, taking a broad look at the menu can help restaurateurs see what makes sense to cut and what can add value by remaining.

Knowing your customers is the key to determining whether prices can continue to climb, where that threshold lays, and how best to engineer your menu to boost your raise revenues. Getting the menu right can help restaurants better navigate the continuing challenges through 2024.