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The process of determining what to charge the customer for food items, menus or services, may be termed as 'pricing'.
In commercial catering, prices depend a great deal on market trends because the proportion of fixed costs is relatively high and the profit margins expected are far greater than those for social institutions. The latter include hostels, schools, lunchrooms, homes for the handicapped, and so on. In these, pricing takes on a cost-effective rather than a profit-making goal.
As discussed earlier, there is a definite relationship between the price level and the volume of sales. High prices are almost always accompanied by a low volume of sales. In food service establishments, however, the volume of sales is the most important determinant of profitability. Therefore, if the right price levels are not arrived at, the desired volume of sales cannot be achieved. Thus, the pricing policy is the most critical factor in the assessment of the viability of an establishment; more so, when there is increasing competition in the field of food service.
Further, technological changes have altered the existing cost structures by shifting the emphasis from one type of cost to another. For instance, where certain jobs are totally or partially mechanized, the labour costs incurred previously have shifted to capital costs. This shift has its effects on the methods of determining prices. The following example explains this effect
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