The restaurant industry is markedly shifting towards digital integration, as evidenced by Dineout’s findings: 77% of customers prefer dining out and love digital menus, and 23% lean towards home delivery and takeaways. A notable example is Burger King’s implementation of digital menu boards across 6,500 U.S. outlets within four months, showcasing the effective use of digital technology to enhance customer engagement and operational efficiency.
This blog will explain essential menu pricing strategies for restaurant owners focusing on integrating digital menus: relative pricing techniques, cost-plus pricing strategies, adjustments based on restaurant types, and premium pricing for exotic cuisines.
Implement Dining with Digital Menus
Digital menus have transformed the typical restaurant experience, shifting from traditional service to a more interactive and efficient model. These menus offer a visual feast, ensure order accuracy, track food preparation, and allow real-time updates. This technological shift means staff can focus more on engaging with customers than merely taking orders.
Consumers, already accustomed to using digital technology for reviews and reservations, increasingly embrace digital ordering, with studies showing a significant percentage opting for digital takeout options.
A pivotal case study from Chili reveals that implementing digital tablets led to a 20% surge in appetizer and dessert sales, demonstrating the potential for increased revenue and customer engagement. Overall, restaurants transitioning to digital menus report an average sales increase of 10-15%, showcasing the substantial impact of this innovative approach on the restaurant industry.
Leverage Relative Menu Pricing Strategy
According to a study, a relative menu pricing strategy can increase the sales of high-profit items by 13% and the overall revenue by 4.5%.
The relative menu pricing strategy can be an intelligent way to enhance profits while catering to diverse customer preferences. For example, an Indian restaurant specializes in regional cuisines. The menu can feature a high-margin item like Paneer Butter Masala at ₹250 alongside a lower-margin, upscale option like Lobster Curry at ₹450 and a moderately priced, high-margin dish like Chicken Tikka Masala at ₹300.
Budget-conscious diners favor Paneer Butter Masala, while those seeking luxury choose Lobster Curry. Chicken Tikka Masala, priced in between, entices customers willing to spend more than Paneer Butter Masala but less than Lobster Curry. This approach steers customers toward high-margin dishes by positioning them near a pricier option, making them appear affordable and attractive. It accommodates various budgets while optimizing profit.
Implement Cost-Plus Pricing Strategy
The Cost-Plus Pricing Strategy is a straightforward approach. For instance, if the production cost of a dish like Chicken Biryani is ₹100, and your target profit margin is 50%, the pricing calculation would be: ₹100 (cost) + (₹100 x 0.5 [50% profit]) = ₹150. This method ensures a well-defined profit margin above the production cost, greatly assisting in effective financial management.
In addition, it is imperative to complement this strategy with a comprehensive understanding of market dynamics and customer preferences.
Set Pricing Strategies according to the restaurant type
A recent analysis shows the impact of menu pricing on restaurant performance. A mere 1% increase in food item prices can lead to a 0.27% increase in footfall.
Customers look to higher menu prices as a sign of higher quality and value and are more willing to visit the restaurant.
Before setting prices for your restaurant menu, it’s crucial to remember the type of restaurant you operate. Your pricing should include the following factors: raw materials, labor, interior decor, maintenance, and miscellaneous expenses. The target is to ensure the menu price reflects your food cost, overhead, labor, and desired profit for each item.
To effectively manage this, you can calculate your Gross Margin Value (GMV):
GMV=(Total Revenue earned – Cost of Goods Sold) /Revenue
Aiming for a GMV between 60-65% is typical, but this can vary based on the type of restaurant. Different restaurant formats have varying overheads and service levels, influencing their GMV:
- Fine Dining Restaurants – 75%.
- Casual Dining Restaurants – 55%.
- Quick Service Restaurants (QSRs) – 45%.
Premium Pricing Strategy for Exotic Cuisine
With the rising trend of exotic cuisines in India, as highlighted by a striking 163.17% growth in interest for Korean cuisine, followed by Chinese, Vietnamese, Mexican, and Turkish cuisines, Indian restaurants can capitalize on this trend through their pricing strategies.
Embracing this popularity, if your restaurant specializes in exotic cuisines, it is strategic to set premium prices. This trend is not merely a reflection of the cost of ingredients but a representation of your unique culinary experience. For example, if your restaurant serves authentic Korean dishes, pricing them higher than local Indian cuisines can significantly elevate their perceived value. This premium pricing creates a psychological impression of an exclusive and refined dining experience.
Consider a dish like Bibimbap or Kimchi Jjigae; pricing these dishes higher than typical Indian offerings communicates their exclusivity and the specialized culinary skill involved in their preparation. This strategy is about the food and the entire cultural and gastronomic journey that the diner experiences.
Conclusion
Restaurant owners must understand these essential strategies to enhance customer engagement and increase profitability. It focuses on adopting digital menus, applying relative pricing, and implementing a cost-plus system, all tailored to fulfill the diverse needs of your customers. Recognizing the significance of setting prices based on your restaurant’s type and exploring the potential of premium pricing for exotic cuisines are crucial steps. To maintain a competitive edge and effectively refine your menu pricing strategies, consider integrating innovative solutions like those Restroworks offers.
Frequently Asked Questions
1. What is Menu Engineering and How Does it Relate to Digital Menus?
Menu engineering is a strategy to maximize revenue by identifying high-profit items and positioning them strategically on digital menus. This approach drives customer choices towards these dishes, enhancing profitability. For example, placing regular fries (with high margins) next to pricier cheesy fries can lead customers to opt for the more profitable regular fries.
2. How Does Cost-Based Pricing Work in a Digital Menu Context?
Cost-based pricing involves adding a fixed markup to the cost of each dish, ensuring profitability. In a digital menu setup, this can be dynamically adjusted to reflect real-time costs. For example, if a dish costs 55 SAR to produce and a 30% markup is added, the menu price would be 71.5 SAR. Digital menus allow for quick updates to these prices based on fluctuating costs.
3. What Role Does Value-Based Pricing Play in Digital Menu Strategies?
Value-based pricing assesses the perceived value of offerings, setting higher prices for dishes with exceptional quality or uniqueness. Digital menus can highlight these unique aspects through visual elements and descriptions, justifying higher prices. For example, specialty dishes made with exotic ingredients can be priced higher to reflect their unique value compared to standard menu items.
