 Over the past few years the brewpub concept has become one of the
fastest growing restaurant trends across the country. If a savvy restaurant operator can
marry fresh, craft-brewed beer with a menu of freshly prepared food served in an
entertaining and fun atmosphere, a brewpub can be extremely successful.
Unfortunately, many brewmasters
who launch brewpubs are not restaurateurs, and a brewpub restaurant is as much a
restaurant as it is a pub that brews its beer on the premises.
The restaurant business, although
very gratifying and sexy, is one of the most difficult types of businesses to operate. One
of the most important factors in operating a brewpub is the development of the menu. It
involves matching foods that complement the alcoholic beverages you serve, internally
marketing the menu items to customers with effective menu design, and properly pricing the
items on your menu. Pricing the menu items is a tricky task because you need to price
items properly to operate profitably and, just as important, you need to price menu items
so that customers feel they are getting a good value. David Mink, owner of Sam Adams Brew House in Philadelphia, claims a brewpub is
simply a restaurant that brews its own beer and to keep your patrons returning, you must
offer great value.Value and Your Market
With Mink’s comment in
mind, to provide great value to customers and operate profitably in a restaurant, first
look at the following factors when developing your restaurant menu:
What will the market bear? You
must analyze the demographics (income, population, age) of your market to determine if
your menu pricing is proper. Minimum rules of thumb for casual-theme chain restaurant
demographics include a median household income of at least $35,000, population of more
than 50,000 within a three-mile radius, and median age of 35.
What are your competitors
charging and offering? Use this as a test of reasonableness to determine whether your
prices and menu items are in line.
Who is your target market? It is
important to understand who your target market is and develop and price your menu
accordingly. This plays into the theme of your restaurant as well. If you want to open a
casual-theme restaurant serving pastas, pizzas, hearty sandwiches, and burgers, you must
develop a menu that is priced lower than if you want to operate a brewpub restaurant with
a more upscale steakhouse theme. Your target market for the casual restaurant will be
larger, though, because your restaurant will be more affordable and thus appeal to a
broader base of segments.
Pricing for Food
After you determine the type
of menu that will provide the best value for your target market, next comes the task of
pricing the items on this menu.
First, develop a potential food
cost to determine what prices you should charge. This involves calculating the cost of all
ingredients used in the production of a specific menu item (the actual item, seasonings,
garnishes), totaling these costs, and dividing by a food cost you wish to achieve for that
menu item. This determines a menu price.
For example on your menu you have
a salmon burger with tomato, lettuce, and dill mustard on a whole wheat bun served with
chips and garnished with a pickle. Say you determine the total cost of all ingredients for
this menu item is $2.10. If you want to achieve a 30 percent food cost for this menu item,
calculate a menu price by dividing $2.10 by 30 percent, which would yield a menu price of
$7.
Once you have calculated this
menu price, review the price to see if it makes sense from the customer’s standpoint.
Adjust the price by reducing or increasing the food cost percentage. Here you can see how
higher costs of items such as steak and seafood increase food cost percentage, because
there is a ceiling on what you can charge for these menu items. For example if your theme
was a steakhouse and you wanted to achieve a 25 percent food cost on a steak menu item
with a total cost of $10, you would have to charge $40 for that menu item ($10 divided by
25 percent). This menu price could possibly dissuade customers from ordering this
particular item.
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Two
additional points must also be mentioned regarding food cost. First, don’t focus on
just one food cost percentage. Some items will have higher food cost percentages than
others. Keep in mind you must offer variety as well as value, and you are aiming to
achieve a weighted average food cost to operate profitably.
Second, you must look at the
dollar amounts as well as percentages in analyzing food cost and gross profit (food sales
less food costs). If you charged $33 for a steak and it cost you $10, you would achieve a
30 percent food cost, similar to that of the salmon burger. However, your total dollar
gross profit would be greater for the steak at $23 (menu price of $33 less cost of $10)
vs. the salmon burger gross profit of $4.90 (menu price of $7 less cost of $2.10). If you
can charge $33 for the steak and achieve the same 30 percent food cost as the salmon
burger, you make more gross profit dollars if you sell more steaks.Consider the
Menu
If you have a steak or seafood
menu, your menu prices will have to be higher because your costs will generally be higher
for these items. If you have an Italian menu, your menu prices could be lower to reflect
the use of such ingredients as pastas and sauces in your menu items. If you have unusual
items on your menu that are difficult to procure (such as exotic wild game), chances are
your menu prices will have to be higher because these items will come at a higher cost to
you.
Mike Hackney, vice president of
operations of John Harvard’s Brew House, a Boston-based company that owns and
operates 14 John Harvard’s Brew House restaurants on the East Coast from Boston to
Atlanta, says the biggest factor in menu pricing for food is to provide high perceived
value to his customers. The menus at John Harvard’s offer tiered pricing: lower
prices to appeal to more price-sensitive customers and higher menu-item prices for less
price-sensitive clientele.
"We like to offer a broad
spectrum of foods as well as different foods for different moods and budgets,"
Hackney says. "Providing value is the key to the successful profitable operation of
our restaurants."
Beverage Costs
As with food costs,
understanding beverage costs can go a long way toward determining pricing for alcoholic
beverages. If you operated a brewpub with a license to serve only malt beverages brewed on
the premises, your beverage cost could be as low as 5 percent of beverage sales. For
example if it costs you 20 cents to produce a pint of freshly brewed beer and you can sell
that pint for $4, your beverage cost could conceivably be 5 percent. However, if you have
a full liquor license, your costs will probably run higher.
Liquor costs can range from 20 to
35 percent, and wine costs can run even higher. If you pay $10 for a bottle of wine and
charge $20 for it, that is a 50 percent wine cost. Although liquor and wine costs will be
higher than the cost of freshly brewed beer and cause lower profitability, offering liquor
and wine can broaden your market appeal and bring more customers into your brewpub.
Taxes
Be wary of additional taxes in
your jurisdiction, which may impact beverage pricing. For example in Philadelphia there is
a beverage tax of 10 percent added to the menu price. It is up to you to be aware of this
and make a strategic decision on how to figure the recovery of this tax in your pricing.
There are many factors that come
into play when attempting to operate a restaurant profitably. The most important are the
initial factors such as knowing your market and understanding menu pricing and food and
beverage cost. These issues need to be addressed in the beginning of your endeavor and
constantly fine-tuned throughout your restaurant operation experience.
In August: Figuring Costs to
Establish Prices |
Menu Pricing Strategies