According to the recently released USDA’s Food Price Outlook for 2022, grocery and restaurant prices will continue to rise, with grocery prices expected to increase between 3-4% in 2022. Restaurant menu prices are expected to grow even more with a projected 5.5-6.5% increase.
Of course, all you have to do is walk down a grocery aisle to see the effects of inflation. The year-over-year changes from March 2021 to March 2022 show an 8.5% increase in fruits and vegetables, a 7% increase in dairy products, and a 6.9% increase in food away from home. It’s the fastest increase in the overall cost of gas, food, and other everyday items since 1981.
Restaurants have had no choice but to raise their menu prices. When you add the supply chain disruptions and rising labor costs, it’s been difficult for many to know how much to raise their menu prices to maintain a profit and not lose their valued customers.
In this, our second in a series of interviews with Mathew Focht, CEO of EMERGING and founder of several companies designed to support restaurants, spoke about the current crisis. To help his clients address this pain point, he worked with a developer to create a product that can keep them informed of real-time competitor pricing and adjustments.
Called Somm Menu Pricing, it will undoubtedly change the way restaurants price their menus. At only $25 a month per unit, it’s clear that Focht is offering these services to help his clients during one of the most challenging times in recent memory.
Here’s what he had to say.
The Impact of Menu Pricing
Menu pricing is one of those things that has always been critical in the restaurant industry. There’s nothing more impactful for a restaurant in terms of the bottom line and profitability than figuring out where they can increase the price of an item without impacting demand.
The restaurant business is a game of pennies. You’re looking at labor and working hard to monetize and manage your labor costs and your cost of goods. Raising prices is the quickest way to increase profits, yet it involves careful analysis and consideration. Some operators do value menu costing—looking at the cost of goods and then marking it up using certain equations. But most restaurants look at their competitors.
It’s as simple as going to their website or walking into the restaurant and looking at their menu pricing. They establish two or three like restaurant comps, with some having more, and they figure out, “Ok, I’m at this price point. I can be a little higher than these restaurants that tend to slash their prices and a little lower than those that are a little higher-end than mine.”
They’re using price competitor analysis, and it’s a very manual process. They may assign it to someone who physically goes to these places or looks online, but either way, it takes extensive time and energy. And, ultimately, it is never done to the extent it should be. I’ve worked with the big chains at over 100 units and the guys with two units, and it’s the same story. There’s missed opportunity for increasing the price on items, which brings more money to the bottom line quicker than anything else they can do.
Operators will also put their restaurant into a specific category or tier within the market, and they may never adjust that tier or pricing. Or, they may have five tiers of pricing, and they’ll do a proportionate increase across the board. But they typically don’t have a good way to price an individual item that allows them to adjust for changing markets. So, for example, maybe it was a tier-one five years ago, but now it’s a tier-five because the market has grown. It has experienced major changes with an increase in the number of restaurants and becoming more of a dynamic location, which allows them to increase its menu pricing.
Right now, given all the pressures in supply chains, many restaurants are being forced to make these price increases. But it’s difficult figuring out where they can increase prices without impacting demand. That’s the fine line restaurants have walked forever.
But that needs to happen now. They need to adjust the pricing because the supply chain pressure is there. The cost of goods has increased, and labor has increased. When you add the inflationary pressure that we now have, it’s clear that pricing has to increase. So, the question becomes, where and how do you do that?
Somm Menu Pricing
So, to address this pain point that all of our restaurants are experiencing, we partnered with a developer and built a product for operators to go online and look at any individual items. It’s like Google for menus, and it allows them to take a precise approach. We could compare it to a scalpel approach rather than a broad-brush stroke that increases prices across the board. It enables them to pick a city and search menu items. They can see all the restaurants that have a menu online. In fact, our platform links them directly to those menus. So they can see it on the actual menu and our platform.
Furthermore, we cover the entire U.S. about every two weeks, picking up every new menu or change within a menu. Now we can see not only what the prices are but also if there’s been a price increase at that restaurant. Let’s say that chicken wings are spiking in price. We’ll look at restaurants in a specific area and see how they’ve accounted for the price increase. Maybe some have increased their price from $13 to $14 for their chicken wing meal.
Operators can keep tabs on their competitors and receive alerts when there’s a change in their menu pricing.
We can also see things they’ve taken off the menu, allowing operators to look at seasonal trends. For instance, your competitors may offer more vodkas and clear spirits going into summer. You might see a lot of Moscow mules coming on the menu and other items, such as drinks made with bourbons, coming off of menus. The Somm Menu Pricing lets you see what’s happening in the restaurant industry and, ultimately, allows restaurants to be a lot more dynamic and find those pricing opportunities.
Integrating with the Point-of-Sale System
When we’re integrated into the POS systems, which we are for most of our clients, we can do an in-house analysis and show them where those opportunities exist based on quantity and pricing.
For example, we have a restaurant group with ten units that we did an analysis for. We took a look at their past wine sales, which amounted to about $440,000. We showed one unit over $50,000 in revenue opportunity by just increasing their wine prices. While this operator will increase the price of a few of their wines, another operator may choose not to. It could be a part of the restaurant’s value proposition, keeping their wines at a lower price than the current market. But the reality is, they now know where they stand.
Any menu items—from beer to chicken wings to steak dishes—you can search and see how your pricing compares on a global, state, or local market level. This allows you to really understand the market on an individual item, and it’s extremely efficient. Just a few clicks and you know what’s happening on a local or state-wide level.
We’ve been able to do this because, coming out of COVID, everybody put their menus online. We couldn’t have done this a year ago, even two years ago, because we wouldn’t get a quarter of the database.
We’re only charging $25 per unit per month, and restaurants can cancel at any time. It gives them tremendous value and the flexibility to see the value. It also offers them a chance to increase their restaurant revenue by thousands of dollars, which is what I would expect. We’re doing this to help these restaurants experiencing immense pressures in labor and supply chains. If they don’t know how to price their menu efficiently, they face a tremendous challenge, especially in today’s environment.
The Response to Somm
Steve Madonna, Bar Louie’s Senior Vice President of Culinary, had this to say about Somm, “Somm Menu Pricing has streamlined the process of competitive analysis, allowing us to focus on what’s truly important, the guest experience.”
Chris Bisaillon, CEO of Bottleneck Management-City Works/Pour House, shared his sentiments. “Somm Menu Pricing has been a great resource helping us identity items where we can consider raising prices. It allows us to see thousands of menus immediately, enabling us to make very informed pricing decisions. The previous menu pricing process was painfully slow and a very manual process.”