When to Raise Prices and How to Do It

Most restaurant operators shudder at the thought of raising menu prices -- especially in uncertain economic times and the age of rampant discounting by the chains. On one hand, they worry that increasing prices may scare customers away. On the other hand, failing to do so may mean they'll have to shutter their doors. It's this classic "Catch-22" scenario that restaurant operators are faced with time and time again.

Unfortunately, there is no easy one-fits-all solution to this nagging dilemma. The only certainty is ever-rising costs will eventually force you to increase your menu prices. The good news is you're not alone; your competitors face the same thing. Another silver lining: Most of the dining public is accustomed to increased prices. They've seen rising prices at the gas pump, the grocery store and at other restaurants. (If they want a $1 "value meal" or "kids eat free on Tuesdays," well, they know where they can go for that.)

It's never easy to know the right time to take the leap. It is also no surprise that this is one of the most frequent topics of conversation in the RestaurantOwner.com Discussion Forum. One longtime member had an interesting response to the question, "When should I raise menu prices?"

Her reply:

1. When costs have gone up and if you don't raise your prices, you won't be able to survive.
2. When you know wholesale prices or fixed costs are going to go up soon.
3. When you are so busy, you have a line out the door most nights.
4. If you think the market can bear it.

You'll see her first two reasons are cost-driven responses while the last two are market-driven. Most operators can easily identify cost-driven reasons as a strong argument for a price increase. But when it comes to recognizing when market conditions can bear an increase, most operators are clueless, and hence, fearful of raising prices.