5 Tips to Avoid Sticker Shock When Increasing Restaurant Prices

By Manjari Mandava
Sr. Director, Strategy & Insights

At Revenue Management Solutions (RMS), we support thousands of restaurant store locations in analyzing their POS data to uncover actionable insights. One of the most common questions we hear is, “How much can I raise my menu prices?”

The answer isn’t simple.

Price adjustments should be a highly tailored process — one size doesn’t fit all. However, some universal principles can guide your approach. Here are five tips to help you increase menu prices without shocking your customers.

1. Start with How Not to Increase Prices

When observing the restaurant industry, we typically see a mix of three approaches:

• Historical Approach: For example, “Every year we take 2% in March.”
• Carry-Over Rule: For example, “We take price on all categories except check builders like sides.”
• Arbitrary Limits: For example, “We don’t increase prices on certain items over $x amount.”

Many brands also adjust their food prices based on competitor actions or set system-wide pricing based on limited corporate data. Often, pricing actions are reactionary to cost increases, rather than proactive planning for future changes.

Instead, we recommend a focused pricing approach at the item level rather than across-the-board, implementing small price increases over time. RMS has found this strategy to be far more effective in achieving business goals while managing price sensitivity.

A good rule of thumb:

• Spread the pricing impact over two to four rounds per year.
• Keep increases at around 1% to 1.5% within each round.

In the current dynamic environment, you could achieve a slightly higher impact within a round of pricing, but be mindful of how much pricing activity you are “carrying over” from previous actions. For example, if you took price increases towards the end of the year, this will continue to impact next year’s revenue for a while.

2. Optimize ROI with Strategic Menu Design

A comprehensive pricing structure requires more than just increasing menu prices. It’s about influencing customer purchasing behavior to maximize ROI. This includes adding or deleting menu items and menu engineering, like bundling or rearranging the menu. For instance, the placement of add-on suggestions can significantly impact their success.

Research by RMS and the University of South Florida’s Center for Marketing and Sales Innovation found that when reading an online food menu, respondents were least likely to respond to suggestive selling in the final stages of customer journey. Yet this is when most restaurant brands upsell. RMS recommends that brands consistently analyze and adjust their menu 2-4 times per year to optimize performance.

3. Be Prepared for External Factors

The three mot common external factors that can drive change are:

• Competition: Competitors raising or lowering prices.
• Inflation: National increases in Food Away From Home (FAFH) or Food at Home (FAH) prices.
• Labor Cost Changes: Changes in labor costs impacting pricing decisions.

With current inflation rates and rising costs, many operators are feeling the pressure. An incremental approach remains crucial in these dynamic times.

4. Analyze Before You Act

We often see brands take price increases across categories based on subjective measures, such as a cost-plus approach and customer feedback. Instead, RMS recommends a data-driven approach, analyzing the following factors:

• Historical Transactional Data: Analyze restaurant data by store location, down to the item level. What sells well in one region, state, city, or even specific location can differ significantly from another. With restaurant technology software such as RMS’ AI-powered pricing tool, restaurant owner can look at pricing at a more granular level. Access to advanced pricing analytics provides brands with insights into potential revenue, traffic, and cost impacts before making changes.
• Traffic Data: Historical data should not stop at menu items; it also relates to traffic. It’s important to understand what drives customer visits.
• Competitive Analysis: With RMS’ Competitor Price Intelligence, restaurant operators can benchmark competitor menu pricing at the category and item-level.
• Customer Behavior: At RMS, we also conduct market tests to help clients gauge customer reactions to menu price changes. If overall profitability decreased, then we recommend holding off on further pricing increases. If profitability held steady or improved, operators may have an opportunity to increase pricing in future pricing rounds.
• Average Check and Total Spend: Monitoring changes in average check and total spend per visit is crucial for assessing the impact of price adjustments.

5. Enhance the Value Equation

While RMS pricing best practices remain constant, the value equation for consumers changes. With the rise of convenience over the recent years, it’s likely that off-premise sales channels will continue to drive traffic.

As a result, operators need to ensure that customers across all their sales channels are seeing value in each transaction. For example, in our consumer survey, we found that 60% of respondents worried about the accuracy of the food they receive when ordering delivery. So, if you’re a fast-casual or fine dining restaurant, are you considering how to-go orders are managed? While today, some customers go out to enjoy a restaurant meal, many continue to want to enjoy them at home. To keep them coming back, it’s crucial to deliver value and a consistent experience both on and off-premise.

Take Your Pricing Strategy to the Next Level With RMS

Interested in optimizing your pricing strategy? Schedule a demo to see Price Studio in action and learn more about how leveraging your data can generate a plan for maximum profitability across all your stores.