As commodity prices have leveled recently, we have consumers modifying their food purchases due to much higher prices for many staples. The financial press has featured plenty of articles on the high prices for gold, oil, corn and other key commodities. Many restaurant chains have increased their menu prices to offset the higher cost of goods sold.
In the short term, savvy restaurant managers can boost profit through strategic menu engineering analysis. Imagine your food purchases are 5% higher for the same sales level. If you raise selling prices by 5%, you can cover the higher cost of sales and increase profits by holding overhead and labor costs low. With a check average of $18 and a 33% food cost, your cost of sales is $6 and your gross profit is $12. Raising the $18 by 5%, you would expect a check average of $18.90. The cost of sales would go to $6.30 in the same 5% rise. Your gross profit would increase by $0.60.
In terms of the original $18 check average, this $0.60 is an additional 3.3% of gross margin.
