As a quick-service restaurant operator, would you prefer efficient menu prices or a 1-percent revenue increase because of more transactions?
Arguably, there is no right or wrong answer; however, let’s rephrase the same question by highlighting the profit implications of each option.Would you prefer a 7-percent (menu pricing) increase in profitability or a 1-percent (incremental sales)?
With this perspective, there is only one right answer: Efficient menu price increases always will deliver substantially higher profits than equivalent transaction increases. The incremental revenue attributable to transaction growth is diminished by royalty, marketing fund, food, labor and other apportioned restaurant expenses. But the revenue generated by menu increases goes straight to the bottom line.
For a long time, menu price increases have been QSR operators’ primary weapon for combating escalating operating costs. No other tactic can be implemented as quickly and as effectively as a well-designed price increase.
When and how to raise prices
I believe the ability to efficiently increase menu prices remains one of the most challenging tasks for not only QSR operators, but for everyone who owns a business. Knowing when and (in some cases) where to raise menu prices is not as simple as you may think.
If you own a QSR in Colorado, you’re probably closely watching the upcoming November elections, when voters decide whether to raise minimum wage from $5.15 to $6.85 an hour. That 33-percent increase will be a bit difficult to absorb when margins are already thin.
Then, no matter what state you’re in, there are unexpected increases in beef, produce and dairy prices and another oil shortage leading to higher fuel costs. With all these issues, you have the makings of a ‘Perfect Storm’ of financial challenges.
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