July 1, 2014

Respecting the Craft: How to open with correct menu pricing

When opening a restaurant, one of the worst things you can do is over price your menu. You can always raise your prices, but when you see a restaurant lower them that could be the sign that they are in trouble.

This principle not only applies to menu items but also for coupons and discounts. A general rule is to have introductory prices when you open –– nothing substantial, but prices that are reasonable while you build a customer base. Follow with a slight increase four to six months later, and then another by the end of your first year.

Local loyal customers are the bread and butter to your business, especially during slow seasons along with a diverse approachable menu that separates you from the other guys. It’s always better not to shock customers with extremely high prices right out of the gate.

When we opened in Las Vegas we had a meeting about offering local discounts to certain agencies and businesses. We settled for a 20-percent off, which I felt was too high. If you’re running a 22- to 25-percent food cost and take 20 percent off, this would get you near a 40-percent food cost, which is a little scary. The hardest thing about this scenario is changing this to a 10-percent or 15-percent discount. This change is very problematic especially if it reached several different outposts and notifying everyone can be really hard and frustrate a customer. We did adjust our discount when 2014 came and it was a very tough transition.

Designing a menu that can be easily reprinted without significant costs is the way to go. I have this at a few of my restaurants and changed my store in Las Vegas to this type of menu within seven months because this year’s prices on raw products were at an all-time high. If items like romaine, arugula, chicken, pork and beef go up you can easily make a change or take the item off for a while and add it back later in the year when or if they go down. Typically produce always fluctuates so it is easy to control when you have a menu that can be easily changed.

I strongly feel that you should always price your menu items based on your cost. When I do make a price change on menus I always lower and raise prices. One really great reason is the response you and your employees will have when a customer asks.

Customers will always say, “Boy, did you raise your prices?” Your employees need to have a frank and honest answer at the ready. Typically, it’s the rise of products, gas, rent, meat –– general inflation. Another great response that you or your employees can say is: “Yes, we raised and lowered our prices.” This can ease the anger coming from that customer because it’s true and it’s a great response. Never raise prices by $1 but instead in cents, such as 50 or 75 cents. It’s easy to argue about raising dollars –– it’s a tough argument when your talking cents. Making incremental changes at least three to four times per year is better than once so it isn’t such a giant change or sway in prices.

Back in the ’90s when I was working with my brother at Pyzano’s we were into that coupon war. We took $3 off a large and $2 off a medium. Our large was 16 inches and we were using premium products. Eventually, our $8.99 large pepperoni went to $9.99 and then $10.99. The increases had to stop. I realized that these coupons were killing us especially if it was carryout when you added a box, corrugated square or parchment, and pie stack. I remember restructuring our coupon with free two liters or breadsticks with any purchase of a large pizza at regular menu price (which cost me 80 cents to $1). I added value for the customer without devaluing my product.

RESPECTING THE CRAFT features World Pizza Champion Tony Gemignani, owner of Tony’s Pizza Napoletana in San Francisco and Pizza Rock in Sacramento.  Tony compiles the column with the help of his trusty assistants, Laura Meyer and Thiago Vasconcelos. If you have questions on any kitchen topic ranging from prep to finish, Tony’s your guy. Send questions via Twitter @PizzaToday, Facebook (search: Pizza Today) or e-mail and we’ll pass the best ones on to Tony.