Catering Management 3(1+2)

Lesson 11&12 : Menu Pricing

Factors Affecting Pricing

• Location of the Food Service : The situation of a food service establishment will affect greatly the prices charged to the customer. It is common experience to find that a coffee shop situated in a market place, where the volume of sales expected is higher, would price products slightly lower than if it was situated in a posh residential area. In the latter, the occasional customer would have to be charged for the higher fixed costs per unit of sales incurred by the establishment. However, location has less importance for a luxury restaurant because people who choose to go to them are usually willing to travel to enjoy them.


• Size and Type of Establishment : The size and appearance of the establishment has a marked effect on the price structure of the menu. For example, a plate of sandwiches or 'pakoras' sold at a wayside' dhaba' or cafe may be priced at 75 paise while the same portions in a coffee shop would be Re. 1 and in a restaurant they could be Rs. 1.50 or 2.00. The food cost is the same as the portions are unchanged, so the reason for the difference in prices, is obviously increased fixed costs of larger and better decorated and maintained premises.


• The Menu : 1be composition of the menu determines the pricing because of the direct relationship between food costs and selling prices. When sales are slack cheaper substitute ingredients for dishes helps to reduce food costs without changes in the prices normally charged. This helps to increase the profit margin and offset the impact of lowered sales volume. Similarly, changes in consistency or texture can affect portions served, and consequently the prices charged. The prices determined will also be affected by whether the menu planned is a set one or an a la carte one. The larger the variety offered in the menu, the greater will be the range of prices charged. The limited menu will almost always have a fixed range of prices.


• Service Method : 1be nature of the service offered to customers has its effect on pricing. For instance, if a self-service system is followed, the prices would not be required to cover the service charge. Besides, the turnover of c;ustomers is expected to be faster leading to a greater sales volume, and therefore a lower food cost percentage of sales, and a consequent lower price structure. On the other hand, a traditional waiter service puts up the prices because of the higher staff costs necessary, more space needed to serve and seat the customer, greater amounts of cutlery, crockery and table appointments required, and so on.


• Likes and Dislikes of Customers More often than not people like to eat what they cannot get at home or get in a hostel or other institution, and therefore go-Out for a change. The favourites of different customers can affect the prices depending on the demand created. Some favorites with all children are burgers, pizzas, ice-creams, chips, 'tikkis'. cutlets or 'chaat'. Adults would normally prefer a full meal of curry, naan, salad and a sweet.


• Purchasing Power as Related to the Expectations of Customers : Prices are affected by how much a customer is willing to pay for a particular food item or meal. For instance, irrespective of the food cost of a hamburger to the carterer, a customer is only prepared to pay up to Rs. 4 or Rs. 4.50 for it, while he would pay even Rs. 7 or 8 for an ice-cream. Very often therefore, prices are adjusted to suit the purchasing power or buying capacity of the customer. In such cases profits are not achieved through prices calculated for predetermined percentages, but through increasing the volume of sales.

  Once customers have chosen the type of establishment in which they wish to eat, then the factors which do determine customer preference is a place which offers good food, well prepared and served in pleasant and clean surroundings.



• Environmental Conditions Any factors in the environment which have an impact on food costs, labour costs, overhead expenses or \ sales volume affect pricing. Some such factors are:
  1. Poor harvests leading to less production of fresh fruits and vegetables, cereals and pulses, legumes, etc. and thereby higher prices of those food items.
  2. Sometimes diseases in farm animals can lead to shortage of good meats or make meats more expensive to buy.
  3. A transport strike may inhibit transportation of food from growing to manufacturing areas and to1 those of consumption as well, pushing up food costs.
  4. Riots leading to curfew conditions can result in a drastic fall in the number of customers affecting the sales.
  5. Closure of markets affect the number of shoppers who generally visit coffee shops or cafes in the area, having its effect on sales volume.
  6. Inflationary conditions created by government policies involving exportation of foods, or taxation trends encouraging the setting up of more food processing industries would result in a price rise for raw foods.
  7. Changes in weather conditions which keep people indoors can affect the number of customers in food service establishments.
  8. Shortages of fuel like electricity, cooking gas, coal, etc. which are so common in developing countries, can be responsible for increasing overhead costs and thereby affecting prices.
  9. Strike or "go slow" at work by staff, or taking of mass casual or french leave by them results in increased labour costs per unit of sales, because causal labour has to be employed.
     The type of conditions in the environment, both external and internal, can therefore be varied depending on the type of food service establishment, its situation, the country, etc.