Chapter 7: Food and Beverage Pricing

Location

A _________ can be a good for business or bad for business. If it is good, menu prices may reflect that fact. If indeed it is bad, menu prices may need to be lower

variable costs

A cost that increases as sales volume increase and decreases as sales volume decreases.

fixed costs

A cost that remains constant despite increases or decreases in sales volume.

loss leader

A menu item that is priced very low, sometimes even below cost, for the purpose of drawing large numbers of guests to the operation.

goal value analysis

A menu pricing and analysis system that compares goals of the food service operation to performance of individual menu items.

menu engineering

A method in which the operator seeks to produce a menu that maximizes the menu's overall contribution margin.

matrix analysis

A method used to make comparisons among menu items which places them into categories based on their unique characteristics such as food cost percentage, popularity and contribution margin.

price/value relationship

A reflection of guests' view of how much value they are receiving for future earnings growth of the company.

Food cost percentage

A second method uses a cost factor or multiplier that can be assigned to each desired food cost percentage.

Guest type

A thorough analysis of who your guests are and what the value most is critical to the success of any restaurant's pricing strategy

value pricing

An extremely low pricing strategy used to drive significant increases in guest counts

profitability

As the goal value for an item increases, so too does its ___________.

YES

Can the algebraic goal value formula be used to create a specific goal value not only for the entire menu but of each individual menu item?

marketing strategy

Contribution Margin: Each of the menu items that fall in the four squares requires a special __________ ________, depending on its location.

nonfood variable costs.

For analysis purposes, most operators find it convenient to assign ______ ______ costs to individual menu items based on the overall restaurant's ______ _____ costs.

break-even analysis

Goal value analysis is becoming increasingly linked to _____-______ ______ because of their mathematical similarities

price/value

Guests demand a good ____/_____ relationship when making a purchase.

Sales Mix

Has the most influence on a manager;s menu pricing decisions. This refers to the frequency with which specific menu items are selected by guests.

D) all of the above

How are the axes on the matrix determined? A) by the average food cost percentage B) contribution margin C) sales level (popularity) D) all of the above.

This may be done through merchandising or incentives to service staff for upselling this item.

How can you improve the B value?

By reducing portion size or changing the item's recipe since both of these actions have the effect of reducing the food cost % and thus increasing the A value

How can you reduce an item's food cost percentage?

maximize volume

In a sales approach to marketing, the goal is to _____ ______ (number of covers sold).

Meal Period

In some cases, diners expect to pay more for an item served in the evening than for that same item served at a lunch period.

decreasing; increasing

Increases in the menu price will also have the effect of ________ the food cost % and the variable cost % of the menu item and ________ the contribution margin.

menu analysis

Involves marketing, imagining, sociology, psychology, and many times, the manager's emotions.

food cost percentage, popularity, selling price, or variable cost percentage

Items that do NOT achieve the targeted goal value tend to be deficient in one or more of the key areas of ____ ____ ________, _______, _____ _____, or ______ _____ ______.

loss leaders

Many operators develop and promote items called ____ _______.

greater

Menu items that achieve goal values higher than that of the overall menu goal value will contribute ______ than average profit percentages.

ONE

On the contribution margin, each menu item finds itself in _____ and only ____ matrix square.

Goal Value Analysis

One answer to address complex questions related to price, sales volume, and overall profit margin is to avoid the overly simplistic matrix analysis and employ a more effective method of menu analysis called ____ ______ _______.

B) a higher check average than the operation may warrant or desire.

Over a long term, the contribution margin approach can result in sales techniques and menu placement decisions that tend to put in the guest's mind.... A) a lower check average than the operation may warrant or desire B) a higher check average than the operation may warrant or desire.

Total Revenue Formula

Price x Number Sold = Total Revenue

Ambiance

Prices may be somewhat higher if the quality of products and ________ also support the price structure.

practical; desirable

Remember, however, that a purely quantitative approach to menu analysis is neither ________ nor _________.

The answer, most likely, is no if the manager is satisfied with the current target food cost percentage, profit margin, check average, and guest count.

Should items that fall substantially below the overall goal value score be replaced?

Item contribution margin

Some managers prefer an approach to menu pricing that is focused and defined as the amount that remains after the food cost of a menu item is subtracted from that's selling price.

accuracy; usefulness

Sophisticated users of the Goal Value Analysis system can modify the formula to increase its _______ and _______ even more.

item contribution margin

The amount that remains after the food cost of a menu item is subtracted from that item's selling price.

contribution margin

The amount that you will have available to pay for your labor and other expenses to keep for your profit.

numerical target; score

The computed goal value is neither a percentage nor a dollar figure because it is really a ________ ______ or ______.

supply and demand

The economic law that states that for most products purchased by consumers, as the price of an item increases, the number of those items sold will generally decrease. Conversely the price of an item decreases, the number of those items sold will generally increase.

Portion size

The effect of _______ _____ on menu price is significant.

Sales Mix

The frequency with which specific menu items are selected by guests.

dependent on past operational performance to establish profitability

The goal value analysis is valuable because it is not, as in the matrix analysis.....

D. All of the above

The marketing approach works best when service levels are: A) limited B) the products sold are easily produced C)cost of providing the product can reliably and consistently be controlled D) ALL OF THE ABOVE

Food cost %, Contribution margin, goal value

The most popular systems of menu analysis represent the three major philosophical approaches to menu analysis.

target

The overall menu goal value can be used as a "________."

profits; menu prices

There should be a clear and direct relationship between a restaurant's ______ and its _____ ______.

Matrix analysis

This is essentially an easy method used to make comparisons among menu items.

Item contribution margin

This is the money that "contributes" to paying for labor and other expenses and providing a profit.

price/value relationship

This reflects guests' view of how much value they are receiving for the price they are paying.

Economic laws of supply and demand

This states that for most products purchased by consumers, as the price of an item increases, the number of those items are sold will generally decrease.

item contribution margin

This term is sometimes used because it employs the same calculation as gross profit margin on the income statement (food sales minus food cost).

popularity (number sold), food cost percentage

To analyze a menu using the food cost percentage method, menu items must be segregated based on the following two variables:

True

True or False: A factor, when multiplied items the item's cost, will result in a selling price that yields the desired item food cost percentage.

True

True or False: Adjustments upward in C may well result in declines in the number of items sold (B Value!!)

False

True or False: As the price of an item decreases, the number of those items sold will generally decrease.

False

True or False: Decreased customer counts should result in maximized total operational revenues.

True

True or False: Each menu item will have its own contribution margin, defined as the amount that remains after the food cost of the item is subtracted from the item's selling price.

True

True or False: Eliminating the poorest items only shifts other items into undesirable categories.

True

True or False: Every menu will have items that are more (and less) profitable than others.

True

True or False: In matrix analysis, each item menu inhabits one, only one, square.

True

True or False: In theory, all menu items have the potential of reaching the goal value.

True

True or False: Increasing prices without giving added value can result in higher prices but, frequently, lower revenues because of reduced guest counts.

True

True or False: It is important to understand that revenue and price are NOT synonymous terms.

FALSE

True or False: Matrix analysis that focuses on food cost percentage is the newest method to use.

True

True or False: Menu analysis addresses, "How does the sale of this menu item contribute to the overall success of my operation?"

True.

True or False: One problem of not reaching the targeted goal value could be that the item's food cost % is too high.

True

True or False: Price increases must be evaluated based on their impact on total revenue and not on price alone.

TRUE

True or False: Restaurateurs utilizing the marketing approach feel that guests are primarily price conscious and will not pay "more" for the menu items at their restaurants then they would pay at competitive restaurants.

False.

True or False: The accuracy of goal value analysis does not have to be well documented.

True

True or False: The prices of items are sold on a menu can represent a variety of concepts.

True

True or False: With a weighted average item contribution margin of $10.83, any menu item with a contribution margin above $10.83 would be considered high, while any menu item with a contribution margin below $10.83 would be considered low. (High is better.)

False

True or False: With an average popularity of 100 covers sold per menu item per week, any item which sold more than 100 times would be considered low in popularity, while any item selling less than 100 times would be considered high in popularity.

2; high; high

Using the contribution margin method of menu analysis, it is desirable to have as many of the menu items as possible to fall within square ___, reflecting ____ contribution margin and ____ popularity.

upward

Variable C, menu price, can also be adjusted ______.

fourth square

We are selling more than our average but they dont cost us very much

the average food cost %, average # of items sold per menu item, average selling price (check average), and average variable cost %

What all meets the overall profitability goal of the restaurant?

D) all of the above

What are the advantages of goal value analysis? A) ease of use B) accuracy C) the ability to simultaneously consider more variables than is possible with two-dimensional matrix analysis. D) all of the above.

Food cost percentage; Item contribution margin

What are the two most popular pricing systems that cost approaches to pricing are based upon?

Goal Value Analysis

What can be used by management to establish future menu targets?

each menu item's food cost percentage, contribution margin, and popularity, analysis of the menu item's nonfood variable (primarily labor) and fixed costs, selling price

What does the goal value analysis evaluate?

goal value analysis

What has the ability to analyze multiple cost variables simultaneously?

menu price

What is Variable C when referring to the Goal Value Analysis?

It tends to favor high-priced menu items over low-priced ones, since higher priced menu items tend to have the highest contribution margin

What is a common criticism of the contribution margin approach?

A menu item that is priced very low, sometimes even below total costs, for the purpose of drawing large numbers of guests to the operation, whole their fellow diners may order items that are more profitable.

What is a loss leader?

to use an Excel spreadsheet

What is an easy way to determine the effects of changes made to goal values?

Work on improving the B value, that is, the number of times the item is sold

What is the second approach to improving the goal value score?

1) Popularity (number sold) 2) Contribution margin

What two variables are used to analyze a menu using the contribution margin method?

fourth

When developing a menu that seeks to minimize cost percentage, items in the _____ square are highly desirable.

profitability, sales volume and pricing.

When used properly, the goal value analysis is a convenient way for management to make decisions required ___________, ______ _______, and ________.

Because it is difficult to know in advance how changing any one menu item may affect the sales mix of the remaining items

Why are menu analysis and pricing decisions a matter of experience, skill, and educated predicting?

Product Quality

You should select the quality level that best represents your guests' anticipated desires as well as your own operational goals, and then price your products accordingly

Menu analysis; pricing decisions

___ ______ and ______ _______ are always a matter of experience, skill and educated predicting because it is difficult to know in advance how changing any one menu item may affect the sales mix of the remaining items.

Goal value analysis

_____ _______ _______ is a menu pricing and analysis system that compares goals of food service operation to performance of individual menu items.

Revenue; price

_______ refers to the amount spent by all guests, while _____ refers to the amount charged to one guest.

Contribution margin

____________ is the amount that your will have available to pay for your labor and other expenses and to keep for your profit.