Food paid for by pubs rose three times faster than their menu prices: report

Food and beverage prices rose on average by 18.3%.

Food paid for by pubs increased three times faster than their menu items in February, figures published by pricing consultancy Pearson Ham revealed.

The figures also noted that ‘add-ons’ rose by over twice as much as overall menu prices. Pearson Ham noted that a pub increased its prices for side dishes by 13.4% whilst increasing main menu items by only 3.2%.

Analyst Peter Backman said that the numbers revealed by the consultancy supported what he observed as a continued squeeze on margins.

“Right now, the squeeze is exacerbated by the differential rate of inflation in the costs of goods – the price of food and beverages – which, in the figures quoted by Pearson Ham, rose on average by 18.3%, three times faster than menu prices which increased by 6.1%. This three-fold differential puts hard, significant pressure on profits,” Backman said.

Backman said that for operators, the seat of the pants reaction when the price of the food and beverages they buy increases, is to raise their menu prices by the same amount and so protect their margin. 

“But of course, it’s never that simple because, to take just one example, care must be taken over what competitors are doing as well,” he said.

More from Peter Backman:

Many operators steer their customers towards the menu items with the highest margin. Intelligent pricing of this type takes a leading role when, for example, the operator increases prices significantly on dishes that customers must have – steak for instance – and raises prices more modestly where margins are already high but which the customer might not want to choose –dessert for example. Intelligently constructed pricing steers the customer toward the high-margin dessert while protecting sales of high-volume dishes.

The customer may not be influenced by blandishments such as these though. She may choose to pay the same as before. But what she chooses may be different. And intelligent pricing should protect the cash margin. Encourage her to choose the products which she may not necessarily choose but which carry the highest percentage margin while ensuring that she continues to contribute the cash margin on the products that she definitely will choose.

This world of pricing is not a science, nor is it an art. It used to be based on gut feel and experience. Nowadays, software can do much of the heavy lifting; algorithms contribute the experience and AI provides the gut feel. But even then, the customer is not to be outguessed – she may choose to do something unpredicted – or the competition can overthrow the apple cart with some price change that is unexpected.

All in all, pricing is about balancing the margin with demand – that’s not an obvious equation and is certainly not subject to precise prediction. But get it right and you provide the conditions for the business to flourish.