Menu Pricing Menu Pricing

Menu Pricing
Thursday, May 26, 2011
BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing
Slide 1 /44
Recap of Semester 4 last session

Enlisting Standardization methods.
Monitoring food and beverage operations by
monthlyy food cost.
Monitoring food and beverage operations by
daily food cost.
Comparing actual costs by standard cost and
variance analysis.
Steps taken in beverage sales.
Establishing sales price of beverages
Slide 2 /44
KCM of the Session

Memorize the formulas for various pricing
methods.
Differentiate between Subjective and
objective pricing methods.
Describe
D
ib various
i
ffactors
t
th
thatt iinfluence
fl
menu planning strategies.
Calculate base selling prices for various
pricing methods.
Slide 3 /44
Pricing Methods
Pricing Methods
Subjective
S
bj ti
Pricing
Objective
Obj
ti
Pricing
Slide 4 /44
Subjective Pricing methods
Largely based on assumptions.

Based on results of other establishments.
Based on personal experience
experience.
Common in the food service industry.
Usually done by people who have very little
knowledge of product cost or profit
requirements.
Unfamiliarity with objective methods.
gp
pricing.
g
Ineffective method of handling
Slide 5 /44
Subjective Pricing methods

1 The reasonable price method
1.
method.
2 The
2.
Th hi
highest
h t price
i method.
th d
3. The loss leader price method.
4. The Intuitive price method.
Slide 6 /44
The reasonable price method

An estimated value/ Price of the dish set
by the manager of the establishment
which he feels is reasonable.
This price is based on feeling and
y of the
sentiment rather than an analysis
content.
However in many
y cases the p
price is right
g
because it has been thought from the
guests perspective.
Slide 7 /44
The highest price method

Usually the manager appoints a panel of
colleagues.
Confers with the panel and includes his
own opinion.
Sets
S t th
the hi
highest
h t price
i as concluded
l d db
by all.
ll
A margin of error is also set in so all
contingencies are taken into consideration.
Slide 8 /44
The Loss Leader method

The price is based on a sales principle of
Promotion of (RIS) Rapid increase of sale.
An unusually low price is set for an item or
items.
The manager assumes that the low price
will attract customers and will also buy
other items.
The method is also interpreted as
schemes.
Slide 9 /44
The Intuitive price method

method.
The method is based on guesswork and
trail and error rather than an calculated
pp
approach.
The method is on the basis of a pricing
plan and if one does not work the other
p
plan is tried.
The method g
grossly
y differs from others
because it is based on Hunches and
guess work.
Slide 10 /44
Objective Pricing Methods

They are based approved operating budgets
budgets.
Transferring and interpreting budget plans
into selling prices
prices.
Mainly based on 3 cost procedures
a. Creating
C ti updated
d t d St
Standard
d dR
Recipes.
i
b. Pre-costing with current costs.
c. Using standard recipes despite changes in
staff and curtail deviation.
Slide 11 /44
Objective Pricing Methods

1. Simple Mark
1
Mark-up(Multiplier)
up(Multiplier) pricing methods
methods.
a. Ingredient mark-up method.
b Prime ingredient mark
b.
mark-up
up method
method.
c. Mark up with accompaniment cost.
2. Contribution Margin pricing method.
3. Ratio Pricing method.
4. Simple prime cost method.
p
p
prime cost method.
5. Specific
Slide 12 /44
Ingredient mark-up
mark up method
Three steps involved in this method:
1. Determine the ingredients costs from all
applicable standard recipes
recipes.
2. Determine the multiplier to use in marking
up the
th iingredients
di t cost.
t
3. Establish a base selling price by
multiplying the ingredients cost by the
multiplier.
Slide 13 /44
Ingredient mark-up
mark up method
Oysters Rockefeller
To determine the Base Selling Price.
To establish the desired food cost
percentage.
To
T find
fi d the
th multiplying
lti l i ffactor.
t
If the Ingredients cost is $ 5.32.
The desired food cost is 40%
Then Multiplier = 1/ Desired food cost %age
Slide 14 /44
Ingredient mark-up
mark up method
Multiplier = 1/ 0
0.40
40
Multiplier= 2.5
Base
B
selling
lli price=
i
IIngredients
di t costt x
Multiplier.
Base selling Price = $ 5.32 x 2.5
Base selling
g Price = $ 13.30
Slide 15 /44
Ingredient mark-up
mark up method
Ingredients Mark-up
Mark up method:
Multiplier = 1/ Desired(Budgeted) FC %
age.
age
Example Budgeted Food Cost Percentage
is
33% which is 1/ 0.33
3.03 is the multiplier
Slide 16 /44
Prime Ingredient Mark-Up

Mark Up method
Based on the basic cost of the main
ingredient.
The multiplier should be greater than the
previous method.
The
Th multiplier
lti li iis established
t bli h d on th
the b
basis
i
of assumption.
If the ingredients cost of the dish is $ 5.32
prime Ingredient
g
cost is $ 2.65.
The p
Slide 17 /44

Mark Up method
The multiplier is assumed to be 5
5.02.
02
Base selling Price = Prime ingredient cost
x Multiplier
Multiplier.
BSP = $ 2.65 x 5.02 = $ 13.30
If the cost of prime increases from $ 2.65
to $ 2.75: then
BSP = $ 2.75 x 5.02 = $ 13.81
Slide 18 /44

Mark Up method
Multiplier =
Total Food Revenue

Total Entre costs
Example:
E
l
Total Food Costs = $ 1,000,000.00
Total Entre costs = $ 350,000.00
Total Revenue
= $ 175
175,7000.00
7000 00
Multiplier = 1757000/350000= 5.02
Slide 19 /44
Mark up with accompaniment

cost Method
M h d
The accompaniment cost is also known as
plate cost.
The Plate cost comprises of cost of
condiments, salads, potatoes, vegetables,
bread and butter and non
non-alcoholic
alcoholic
beverages.
The
Th plate
l t costt iis added
dd d tto th
the main
i entre
t
cost before its multiplied by the factor.
Slide 20 /44

cost Method
M h d
Entre cost
$ 3.15
3 15
+
Plate
Pl
t costt
Estimated Food Cost
Multiplier
Base selling price
$ 1.25
1 25
$ 4.40
x 3.3
$ 14.52
14 52
Slide 21 /44

cost Method
M h d
Step A:
Calculate per meal accompaniment cost
Assume:
A
Total Food Costs
= $ 1,000,000.00
Total Entre costs
= $ 350,000.00
Total accompaniments Cost = $ 650
650,000.00
000 00
Number of Guests
= $ 125,000.00
Slide 22 /44

cost Method
M h d
=
$ 650,000(accompaniments
,
(
p
cost))
125000(Guests)
p
cost = $ 5.20 Per meal
Accompaniments
Step B:
Entre Costs $ 2.80
Accompaniments Cost $ 5.20
Total Costs $ 8.00 per meal as food cost
If the desired food cost is 33% then 1/33=3.03
Base selling Price = $ 8.00x3.03= $ 24.24
Slide 23 /44
Contribution Pricing method

Contribution margin is the amount left after
food cost is subtracted from Sales
Sales Main Variable costs = Contribution
Margin.
Also means the amount of that the sale of
the menu item contributes to pay all non
food costs allocated to the food service
operations to help with the profit
requirements.
Slide 24 /44

To set the Base Selling price by this method
method.
1. Determine the average contribution margin
required per guest by dividing all non-food
costs + required profit by the expected
number of guests.
2. Determine the base selling price for the
menu item by adding the average
contribution margin required per guest to the
items standard food cost.
Slide 25 /44
All Non food costs

= $ 695,000.00
Required Profit set as = $ 74,000.00
Guests Expected
= 135,000
135 000
1: To calculate average contribution Margin
required
q
p
per g
guest.
Non food costs + Required Profit
Number of expected Guests
$ 695,000 + $ 74000 = $ 5.70
135000
Slide 26 /44

2
2. Determine the Base selling Price for a
menu item.
BSP= Standard Food Cost + Average
Contribution Margin
BSP = $ 4
4.60
60 + $ 5
5.70
70 = $ 10
10.30
30
Slide 27 /44
Ratio Pricing method

This method determines the relationship
between fixed costs and all non food costs
plus profit requirements
requirements.
Usually done in three steps:
1 D
1.
Determine
t
i th
the ratio
ti off ffood
d costs
t to
t allll
non food costs plus required profit by
di idi allll non ffood
dividing
d costs
t plus
l profit
fit b
by
food costs.
Slide 28 /44

2 Calculate the amount of non food costs
2.
plus profit required for a menu item by
multiplying the standard food costs of the
menu item by the ratio calculated in step
1.
3. Determine the base selling price of a
menu item by adding the result of step 2 to
the standard food cost of the menu item.
Slide 29 /44

Problem: Anudeep family style restaurant
has the following approved budget shows
the following figures
figures.
1. Food Costs:
$ 435,000.00
2 NFCs:
2.
NFC
$ 790
790,000.00
000 00
3. Required Profit: $ 95,000.00
4. Menu Item standard FC = $ 4.75
Slide 30 /44

Step 1: Determine the ratio of food costs
to all other costs plus profit requirements:
All Non Food Costs + Required Profit = Ratio
Food Cost
$ 790,000.00+ $ 95000
$ 435,000.00
= $ 2.03
Slide 31 /44

Step 2: Calculate the amount of non food
costs and profit required for a menu item.
NFC
NFC & Profit required = SFC x Ratio
= $ 4.75 x 2.03 = $ 9.64
Step 3: Determine the base selling price
for the menu item
Step 2 result + SFC
9 64 + $ 4.75
4 75 = $ 14
14.39
39
$ 9.64
Simple Prime costs method

Prime costs are defined as direct material
+ direct labor+ direct expenses
In hospitality it is Cost of Food and
Beverage + Cost of Labor.
The
Th following
f ll i can b
be achieved
hi
d iin 3 steps:
t
1. Determine the labor cost per guest by
dividing total of all labor costs by the
number of expected guests.
Slide 33 /44
Simple Prime costs method

2 Determine the prime costs per guest by
2.
adding labor cost per guest to the menu
items food cost.
cost
3. Determine the menu items base selling
price by dividing the prime costs per guest
by the desired prime costs percentage (
Food cost + labor cost percentage)
Slide 34 /44
Demonstrative example
Given:
Menu Item Food Cost
Labor Costs
Number of expected guests
Desired Prime costs % age
To be derived:
1. Labor cost per guest.
2 Prime
2.
Pi
costt per guestt
3. Base selling Price.
$ 3.75
$ 210,000.00
75000
62%
Slide 35 /44
Demonstrative example
1. Labor Cost per guest = Labor Costs
Number of expected Guests
$ 210000/75000 = $ 2
2.80
80
2. Prime cost per guest = Menu Item FC +
Labor cost p
per g
guest.
$ 3.75 + $ 2.80 = $ 6.55
3. BSP = Prime Cost per guest/ Desired Prime
cost % age
$ 6.55/ 0.62= $ 10.56
Slide 36 /44
Specific Prime Costs method

Budget Item
1
Food Cost
Labor Cost
All other Costs
Profit
Total
Multiplier
Category
C
t
(A)
Extensive
Operating Budget
Preparation Items
Percentage
2
3
35%
60% of 35 % = 21%
30%
55% of 30% =17 %
60% of 13% = 8%
20%
60% of 20% =12%
15%
60% of 15% = 9%
100%
67%
100%/33%= 2.9
67%/21%=3.2
Category(B)
C
t
(B)
Non-extensive
Preparation Items
4
40% of 35% =14 %
40% of 13% = 5 %
40% of 20 % = 8%
40% of 15% = 6%
33%
33%/14% = 2.4
Slide 37 /44
Specific Prime Costs method

Using the multipliers in the Specific Prime
costs method.
If the Food cost of a menu item which
involves extensive preparation is $ 4.75
p y multiply
p y it by
y the multiplier
p
3.2 = $
simply
15.20.
If the food cost of the menu item that does
not require extensive preparation is $ 4.75
multiply it by the multiplier 2.4 = $ 11.40
Slide 38 /44
Numerical Calculation
Siddhants Beefyy Town g
grill does not serve
alcoholic beverages. Its operating budget
reveals the following:
Revenue
$ 1375000
1375000.00
00
Food Cost
$ 585,000.00
Non Food Costs $ 710
710,000.00
000 00
Profits
$ 80,000.00
Number of guests $ 161580
Guest Check average $ 8.51
g
$ 790,000.00
,
Contribution Margin:
Slide 39 /44
Numerical Calculation
Using the information calculate the base
selling price of a menu item with a total
ingredient cost of $ 4
4.85
85 using:
a. The contribution margin pricing method.
b The
b.
Th ratio
ti pricing
i i method.
th d
c. The simple prime cost method( the non
food costs include $ 426250.00 in labor
costs)
Slide 40 /44
BSP by Contribution Pricing

M h d
Method
ACM= NFC + RP
Ex # Guests
710000+80000
710000 80000 = $ 4.889
161580
BSP = SFC + ACM
= $ 4.85
4 85 + $ 4
4.889
889=
$ 9.75
9 75
Slide 41 /44
BSP by Ratio Pricing method

Step 1: Ratio of Fc
Fcss to other costs
All NFCs + RP = 710000+80000 = 1.350
F d Cost
Food
C t
585000
Step 2: Calculate the amount of AFCs & P reqd
Which is = $ 4.85 x 1.350= $ 6.545
Step3: Determine BSP
BSP = Step 2 + SFC
Which is $ 6.545 + $ 4.85 = $ 11.395
Slide 42 /44
BSP by Simple Prime costs

Step 1: Labor cost per guest
= Total Labor costs/ # of Expected guests.
= 426250/161580
Slide 43 /44
Q
Questions
ti
R
C
Comments
t
Slide 44 /44

Menu Pricing Menu Pricing

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Menu Pricing

Thursday, May 26, 2011

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Recap of Semester 4 last session

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

KCM of the Session

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Thursday, May 26, 2011

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Subjective Pricing methods

Largely based on assumptions.

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Subjective Pricing methods

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

The reasonable price method

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

The highest price method

Thursday, May 26, 2011

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

The Loss Leader method

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

The Intuitive price method

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Objective Pricing Methods

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Objective Pricing Methods

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Thursday, May 26, 2011

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Thursday, May 26, 2011

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Prime Ingredient Mark-Up

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Prime Ingredient Mark-Up

Thursday, May 26, 2011

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Prime Ingredient Mark-Up

Total Food Revenue

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Mark up with accompaniment

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Mark up with accompaniment

Thursday, May 26, 2011

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Mark up with accompaniment

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Mark up with accompaniment

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Contribution Pricing method

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Contribution Pricing method

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Contribution Pricing method

All Non food costs

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Contribution Pricing method

Thursday, May 26, 2011

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Ratio Pricing method

BAC-5132 Food and Beverage Management-II-Menu Engineering Menu Pricing

Ratio Pricing method