Where menu prices are really determined

This morning I read an article regarding the rising costs of food and how restaurants will respond.  In the article former server Charles Ferruzza finds a pair of local restaurant owners who say they will refuse to raise prices to compensate for the increase in costs.  The owners discuss absorbing the costs themselves or reducing portion sizes to keep prices constant.  While I am certain no owner was eager to have an article written about their pending price hike, there is another side to this story.  The difference in priorities between an independent owner and corporate shareholders is something that explains a great deal about the restaurant industry.

Independent restaurant owners directly profit from the money spent at their restaurants.  They have the autonomy to determine what is best for their restaurants long term.  Maintaining profitability in the long term is more important than immediate profits.  They determine how much of the profit they take as income and how much is reinvested into the restaurant.  If they are convinced that foregoing short term profits is better for the long term profitability of the restaurant, they can proceed in that manner.  This in reality is the owner offering to subsidize the guest’s meal to keep them returning.   For the individual owner of a profitable restaurant, this short term hit can be seen as a long term investment in the restaurant.

Read the full post at The Manager’s Office

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