Every week we comb through the news to find employment trends affecting the hospitality industry so you don’t have to. This week’s Hospitality in the News topic: should you increase menu prices?  

At this point, it’s been years since the restaurant industry wasn’t dealing with some sort of pandemic-related crisis. COVID closures, staff shortages, and now supply chain issues that are inflating food costs. As owners and managers continue to navigate this challenging landscape, many are wondering how to combat inflation, which begs the question: should you increase menu prices?

Should You Increase Menu Prices? 

Reports show that some restaurants, like Domino’s and Ruth’s Chris, have already begun increasing menu prices in small increments – and surely other restaurants have followed suit. Though there’s a lack of reporting surrounding independent restaurants, they’ve likely increased menu prices as well whether it’s to counterbalance higher wages or menu prices.  

When thinking about whether to raise menu prices, it’s important to consider a few things, such as:  

  • What the additional revenue goes towards 
  • How much to increase prices by 
  • How customers will feel about the change  

By taking these items into consideration, you can better create a plan for if/when you decide to make changes to your prices.

What the additional revenue goes towards 

More often than not, managers will be putting additional revenue from increased menu prices towards food costs; according to Restaurant Business Online, “restaurant-related inflation rose 0.6% in December and 6% total in 2021, the largest increase since 1982.”  

There are other options when deciding what additional revenue could go towards. Some managers will opt to increase employee wages in hopes of better attracting candidates. Other restaurants have opted to put their money towards their staff in a more unique way – by providing health insurance.  

How much to increase prices by 

Deciding how much to increase menu prices by will take a lot of thought and research. You’ll want to know how competitors’ price their offerings, what consumers will be willing to pay, and other geographic data. You should also consider the science behind “menu engineering,” which looks at the psychology of designing your menu (including prices).  

How customers will feel about the change 

This is the biggest concern surrounding increasing menu prices. A recent report by Yelp revealed the following data about consumer sentiment regarding price increases:  

  • “Review mentions of price increases — including comments like “used to be cheaper” and “more expensive — have grown 29% from the fourth quarter of 2020 to the fourth quarter of 2021.” 
  • “But even though customers are complaining about price jumps at their favorite restaurants, that has not slowed down their spending. In fact, according to Yelp, searches for the highest-priced restaurants have increased by 56% in 2021 when compared to pre-pandemic levels, likely at least in part due to pent-up demand from so many people staying at home for a year or more.” 

The report also mentions that despite this data, customers are continuing to choose delivery/take out options over dine-in. Keep this in consideration when adjusting menu prices.  

Due to supply chain issues, it’s expected that inflation and rising food costs will continue to plague the restaurant industry. Though it’s not always the ideal option, increasing menu prices can help solve some of the challenges managers are facing right now.