Cracking the Menu Code

Cracking the Menu Code

How restaurants set prices, and why some dishes are loss leaders and others are pure profit.

Do you remember a time when we all thought $22 scallops on a menu was about as spendy as food could get? It wasn’t that long ago, but now we regularly see $40 entrées, and a $20 burger is just another Tuesday. Everyone has an opinion about restaurant pricing, but nobody outside the business much understands it. You could make that seafood pasta for like $6, right? So, we decided to go inside the pricing model of three local restaurants to explain the art and science of what we pay. Restaurants divide their overhead into three basic categories: food, labor, and rent/miscellaneous. For our purposes, “food cost” (FC) is the term to know. A restaurant divides what it spends on food by its sales and, ideally, it comes out at 30 to 33 percent. Restaurants generally spend another third on labor, though in Minneapolis it’s nearing 40 percent due to minimum wage hikes and labor shortages. What remains goes to rent, utilities, and the oven that broke. Anything that’s left is profit.

Red Wagon Pizza Company, Minneapolis

This south Minneapolis pizzeria is a family operation, run by Jacquie and Peter Campbell. The brick-and-mortar Armatage neighborhood restaurant uses heritage-grain flour in its dough and is a scratch kitchen. Ninety-three percent of Americans eat pizza at least once a month, and the business has long been considered one with good margins because pizza is just flour and water. Still, increasing cheese prices and mounting online competition from chains (with 61 percent of market share) make it tougher for an independent.

Caesar salad, $11

Gem lettuce | Parmesan | soft-boiled egg | focaccia

“We originally had it at $5, because we didn’t know what we were doing,” Peter Campbell says. At sub-20 percent FC, Red Wagon sells enough salad to offer high FC harissa-maple lamb ribs once in a while.

Red Wagon pizza, $19

Crispy soppressata | banana peppers | cheese | sausage | chili flakes | fig balsamic

“It’s 14 inches, but I can’t go above $19 with it; people won’t have it. But I can shrink it down to 12 inches [roughly a third less pizza] and still charge the same price and no one blinks,” Peter says. He aims for a general 30 percent FC on his pizzas, despite the pricey Robiola cheese.

Pajarito, St. Paul

Former La Belle Vie chef Tyge Nelson and chef Stephan Hesse opened Pajarito together off West Seventh. Calling it a refined Mexican bistro, this food category battles a cultural stigma. Because tacos have long been the province of fast-food outlets and trucks, the public regards it as “cheap eats,” and more complex efforts have a hard time commanding higher prices.

Pajarito old fashioned, $15

Herradura añejo tequila | rye whiskey | Oloroso sherry | bitters

The Herradura tequila comes from a barrel the Pajarito team sampled and selected at the distillery in Jalisco. Because it meant buying the whole barrel ($70 retail), they had to gamble that it would be a draw. The gamble paid off; Pajarito is about to buy its second barrel.

“This really should be a $17 cocktail to keep the [FC] in line, [and] we never wanted to be a place with $15 cocktails, but this tequila is just too delicious,” Hesse says. “We’ll take the hit [on margin] to have it here.”

Tacos, two for $9

Choice of: pork carnitas | pork árabes | beef barbacoa | soft-shell crab | crispy chicken | braised greens

Tortillas are made in-house, which is labor-intensive, but you taste the difference. “The soft-shells cost us more than the chicken or veggies,” Hesse says, “but we figure that we picked a good average price. Carnitas are the no. 1 seller and sit right in the middle [of markup].”

“We want people to be able to come in, grab a beer, and get full for $13,” he adds. “But it’s funny that some people look at $9 for tacos and [feel ripped off]. We are making the tortillas all day, we do all our own meats in-house, so just because it’s a taco doesn’t mean it should automatically be $3.”

Overall, FC is in the 30 percent range.

P.S. Steak, Minneapolis

Jester Concepts revamped the La Belle Vie space to launch its modern steakhouse. Executive Chef Mike DeCamp, who helmed LBV for eight years, knows the trials of presenting a high-end restaurant in this market.

Steakhouses have real challenges in pricing because the cost of the core proteins have skyrocketed. Most steakhouses endure FC approaching 50 percent on some proteins as a result, which must be balanced with dishes with rock-bottom FC. DeCamp says that overall he aims for 33 percent FC, and generally stays in the ballpark.

Emidio Pepe, Montepulciano, $220

This wine costs P.S. about $120, a 45 percent PC (in this case, it’s called “pour cost”), and is only sold by the bottle. DeCamp likes keeping the low-markup Emidio on the menu because it draws wine drinkers, a clientele steakhouses covet.

DeCamp’s standard is to price wines by the glass at the restaurant’s wholesale cost for the bottle (so, if the rest of the bottle doesn’t sell, his costs are covered, which makes wine typically a 25 percent PC. Many restaurants take a bit less profit on wine, selling it at 30 to 35 percent PC.)

Most restaurants want to make a bit more money on glass pours by pricing four 6-ounce glasses a bit above the bottle price. P.S. Steak doesn’t penalize by-the-glass drinkers, though, and prices each at a quarter of the bottle price.

Bourbon-aged eye of ribeye, $59

DeCamp buys prime beef for $19 a pound, then ages it for about two weeks, losing about 15 percent of the mass, bringing cost closer to $25 a pound. The beef is then cut into steaks. “We want to run a specific [food cost average] on our steaks. We may be running 45 percent [food cost] on this item, but since we use the [trimmings] for the burger and smaller steak specials,” it averages out.