Lecture Food and beverage cost control, chapter 6 - Managing food and beverage pricing. This chapter presents the following content: Menu formats, menu specials, factors affecting menu pricing, assigning menu prices, special pricing situations, technology tools.
Chapter6 ManagingFoodand BeveragePricing â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson,Hayes,&Miller MainIdeas ã ã • • • Menu Formats Factors Affecting Menu Pricing Assigning Menu Prices Special Pricing Situations Technology Tools © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Menu Formats • Menus – standard, daily or cycle • Menu “tipons,” smaller menu segments clipped on to more permanent menus • The standard menu is fixed day after day • The daily menu changes every day • A cycle menu is a menu in effect for a specific time period. The length of the cycle refers to the length of time the menu is in effect • Daily or weekly menu specials provide variety, low cost raw ingredients, carryover utilization, or test market potential for new menu items © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.1 Sample Cycle Menu Rotation Day 1-7 - 14 15 - 21 22 - 28 29 - 35 36 - 42 43 - 49 50 - 56 57 - 63 © 2011 John Wiley & Sons Cycle A B C D A B C D A Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller FactorsAffectingMenuPricing ã Totalrevenueisgeneratedbythefollowingformula: PricexNumberSold=TotalRevenue ã Aspriceincreases,thenumberofitemssoldwill generallydecrease â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson, Hayes, & Miller Figure 6.2 Alternative Results of Price Increases Old Price New Price $1.00 $1.25 $1.25 $1.25 $1.25 Number Served 200 250 200 160 150 Total Revenue Revenue Result $200.00 $312.50 $250.00 $200.00 $187.50 Increase Increase No Change Decrease © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Factors Affecting Menu Pricing © 2011 John Wiley & Sons Local competition Service levels Guest type – price sensitivity Product quality Portion size Ambience Meal Period Location Sales mix Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Factors Affecting Menu Pricing • Sales mix refers to the specific menu items selected by guests • Sales mix will most heavily influence the menu pricing decision • Price blending refers to the process of pricing products, with very different individual cost percentages, in groups with the intent of achieving a favorable overall cost situation. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.3 Unblended Price Structure Texas Red’s Burgers Item Hamburger French Fries Soft Drinks (12oz.) Total Item Cost $1.50 0.32 0.18 2.00 Desired Food Cost 40% 40 40 40 Proposed Selling Price $3.75 0.80 0.45 5.00 Figure 6.4 Blended Price Structure Texas Red’s Burgers Item Hamburger French Fries Soft Drinks (12oz.) Total Item Cost $1.50 0.32 0.18 2.00 Proposed Food Cost % 60.2% 21.5 16.5 39.4 Proposed Selling Price $2.49 1.49 1.09 5.07 © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.5 Sample Sales Mix Data Texas Red’s Burgers Total Sales: Total Food Cost: Item Hamburger French Fries Soft Drink (12 oz.) Total $ 449.25 $ 180.20 Number Sold 92 79 94 Guests Served: Food Cost %: Total Item Food Cost Cost $1.50 $138.00 0.32 25.28 0.18 16.92 180.20 100 40.1% Selling Price Total Sales $2.49 1.49 1.09 $229.08 117.71 102.46 449.25 Food Cost % 60.2% 21.5 16.5 40.1 â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson,Hayes,&Miller AssigningMenuPrices PricingFactor ã Acostfactorormultipliercanbeassignedtoeach desiredfoodcostpercentageasfollows: 1.00 DesiredProductCost%=PricingFactor ã Thepricingfactorwhenmultipliedbyanyproduct costwillyieldasellingpricethatisbasedonthe productcost.Theformulaisasfollows: PricingFactorxProductCost=MenuPrice â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson, Hayes, & Miller Assigning Menu Prices Contribution Margin • Contribution margin is defined as the amount that remains after the product cost of the menu item is subtracted from the item’s selling price. Contribution margin is computed as follows: Selling Price – Product Cost = Contribution Margin © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Assigning Menu Prices • When this approach is used, the formula for determining selling price is: Product Cost + Contribution Margin Desired = Selling Price • Goalissettingagoodprice/valuerelationshipinthe mindofthecustomer ã Thesellingpriceselectedmustprovidefor predeterminedoperationalprofit â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson,Hayes,&Miller AssigningMenuPrices • The Leadership in Energy and Environmental Design (LEED) rating system developed by the U.S. Green Building Council (USGBC), evaluates facilities on a variety of standards. • The rating system considers sustainability, water use efficiency, energy usage, air quality, construction and materials, and innovation © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations • Coupons are a popular way to vary menu price Buy one, get one free, or Some form of restriction is placed on the coupon • Coupons have the effect of reducing sales revenue from each guest in the hope that the total number of guests increases to the point that the total sales revenue increases © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations • Value Pricing refers to the practice of reducing prices on selected menu items in the belief that total guest counts will increase to the point that total sales revenue also increases • Bundling refers to the practice of selecting specific menu items and pricing them as a group in such a manner that the single menu price of the group is lower than if the items in the group were purchased individually â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson,Hayes,&Miller SpecialPricingSituations ã Thedifficultyinestablishingasetpriceforeithera saladbarorbuffetisthattotalportioncostcanvary greatlyfromoneguesttothenext • The secret to keeping selling price low for a salad bar or buffet is to apply the ABC method. A items should comprise no more than 20% of the total product available; B items, no more than 30%; and C items, 50% © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller SpecialPricingSituations ã Usethefollowingformulatodeterminebuffet productcostperguest: TotalBuffetProductCost GuestsServed=BuffetProductCostperGuest â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson,Hayes,&Miller Figure 6.7 Salad Bar or Buffet Product Usage Unit Name: Lotus Gardens Beginning Amount lb Date: 1/1 (Dinner) Additions 44 lb Ending Amount 13 lb Total Usage 37 lb Unit Cost $4.40/lb Total Cost $162.80 Item Sweet & Sour Pork Category A Bean Sprouts Egg Rolls B lb 17 lb lb 18 lb 1.60/lb 28.80 B 40 each 85 each 17 each 108 each 0.56 each 60.48 Fried Rice Steamed Rice Wonton Soup C 10 lb 21.5 lb 8.5 lb 23 lb 0.60/lb 13.80 C 10 lb 30 lb 6.5 lb 0.40/lb 13.40 C gal gal 1.5 gal 33.5 lb 6.5 gal 4.00/gal 26.00 Total Product Cost Total Product Cost: Guests Served: © 2011 John Wiley & Sons 305.28 $305.28 125 Cost per Guest: $2.44 Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations Bottled Wine • How you decide to price the bottled wine offerings on your menu will definitely affect your guest’s perception of the price/value relationship offered by your operation • The price spread is defined as the range between the lowest and highest priced menu item • Try to reduce the price spread © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations Beverages at Receptions and Parties • Pricing beverages for open bar events can be difficult, since each customer group can be expected to behave somewhat differently when attending an open bar or hostedbarfunction ã Saleshistoriescancalculateaverageconsumption ã Thenusetheformula: ProductCost+ContributionMarginDesired=SellingPrice â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson,Hayes,&Miller Figure 6.8 Beverage Consumption Report Event: Gulley Wedding Date: 1/1/ Unit Name: The Carlton Hotel Beverage Type Liquor A B C D E F G Beer A B C D E Wine A B C D Other: Champagne: A Sparkling B Sparkling Pink Total Product Cost Beginning Amount Additions Ending Amount Total Usage Unit Cost Total Cost bottles bottles 24 24 11 23 21 6.00/btl 9.00/btl $ 138.00 189.00 327.00 Total Product Cost: $327.00 Guests Served: 97 Cost per Guest: $3.37 Remarks: Mild group; very orderly; no problems â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson,Hayes,&Miller TechnologyTools ã Themathematicalcomputationsrequiredtoevaluate theeffectivenessofindividualmenuitemsandto establishtheirpricescanbecomplex,buttherearea wide range of software products available that can help you: Develop menus and cost recipes Design and print menu “specials” for meal periods or happy hours Compute and analyze item contribution margin © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools Compute and analyze item and overall food cost percentage Price banquet menus and bars based on known product costs Evaluate the profitability of individual menu items Estimate future item demand based on past purchase patterns Assign individual menu item prices based on managementsupplied parameters © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Summary • • • • • Menu Formats Factors Affecting Menu Pricing Assigning Menu Prices Special Pricing Situations Technology Tools © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller ... Dopson, Hayes,? ?& Miller Figure 6. 1 Sample Cycle Menu Rotation Day 1-7 - 14 15 - 21 22 - 28 29 - 35 36 - 42 43 - 49 50 - 56 57 - 63 © 2011 John Wiley & Sons Cycle A B C D A B C D A Food? ?and? ?Beverage? ?Cost? ?Control, 5th ... Served: Food Cost %: Total Item Food Cost Cost $1.50 $138.00 0.32 25.28 0.18 16. 92 180.20 100 40.1% Selling Price Total Sales $2.49 1.49 1.09 $229.08 117.71 102. 46 449.25 Food Cost % 60 .2% 21.5 16. 5... â2011JohnWiley&Sons FoodandBeverageCostControl,5th Edition Dopson,Hayes,&Miller AssigningMenuPrices ã ProductCostPercentage/PricingFactor ã ContributionMargin â2011JohnWiley&Sons FoodandBeverageCostControl,5th