Omnes Principle: Pricing Strategy
What is the Omnes principle? Many restaurants set their sales prices in an approximate way. And yet these simple methods can be very profitable. Most professionals simply multiply the cost price by a ratio or simply copy competitors' cards.
The creation of a menu in a restaurant requires a substantial financial investment, which depends on the style, the choice of textures, the graphics, and all this has no impact on profitability. Indeed, the most beautiful and best designed menu is not necessarily the one that will sell the most and attract the most customers.
This article does not cover all aspects of menu structuring but focuses on pricing to improve margin. The aim is to analyse the different dishes in the same range according to several criteria such as price, margin or popularity. However, price variation is not very important in the high-end restaurant business. The Omnes principles may be less suitable for a restaurant of this type, for example.
Pricing your restaurant menu
So when setting sales prices, you have to take into account for example :
- Your competitive environment
- Your values and vision
- Current economic conditions
- Sourcing and products with the best quality-price ratio
- Your competitive advantages
From all these approaches, the ideal priced product will be the one that allows you to make the most profit in line with your customers' expectations. Then, to develop this strategy, you need to know the reactions of your customers by compiling the sales data with your manufacturing costs.
The most common method used in the restaurant industry is the Omnes principle with four principles of sales analysis. These principles, as well as the menu engineering and margin calculation, are developed in our Koust software and make it possible to avoid having to systematically carry out this type of calculation.
Omnes' first principle: Opening of the range
First of all, therange opening represents the width in price of a range, i.e. the difference between the price of the cheapest dish, menu or ingredient compared to the most expensive. The range is therefore a product family such as :
- the wines
- or more specifically red wines
- or wine by the glass
- the fish,
- all ice
- or desserts
- the offer of fresh fruit juice...
The "range opening" indicator is therefore the ratio between the highest and lowest price of a range on your card. Ideally, this ratio is between 2.5 and 3. Sometimes the ratio is much higher than 3 for a product range such as wine, especially if you have a large offer. A ratio of less than 2.5 would probably be an ultra-targeted offer that does not allow us to measure sales and know if it corresponds to our target.
Second principle: Price dispersion
Then, keeping the same ranges as in the previous paragraph,the price dispersion is a representation of the distribution of prices in these ranges. We then divide the selling prices of the dishes in this range into 3 equal ranges:
- High bracket: one third of the highest prices
- Average or median bracket
- Low bracket: lowest third of prices
If the range goes from 3€ to 9€ :
- High bracket: from €7 to €9
- Middle bracket: from €5 to €7
- Low bracket: from 3€ to 5€.
In this principle, the number of dishes in the middle zone should be equal to the sum of the low and high zones.
Principle 3: Customer reaction to prices
This principle is undoubtedly the most important and the most effective in the long term. It measures the coherence of the menu and the sales prices of the dishes in relation to the clientele in order to know which price range is the most popular. In fact, for this index we keep the same range of products used previously.
By calculating the average of the prices offered on the card and the average basket on this range, we obtain 2 figures:
- The average offer = total prices of the range / number of dishes in the range
- Average demand = turnover of the range / number of customers
The ratio between the average demand and the average supply gives the desired indicator, the reaction indicator to the price of the products.
Si le rapport est <0,9 : la moyenne de l’offre est trop faible. On peut donc ajouter un produit au prix élevé ou peut-être supprimer un produit moins cher pour ajuster l’offre.
If it is > 1: the average of the offer is too high. We can therefore add a cheaper product or rather remove a more expensive product to adjust the offer.
Example of Omnes' Principle: sales tables of dishes in a restaurant
|Dishes||Awards||Quantities||CA INCL. VAT|
|Fish & Chips||12,50||144||1800|
|Fillet of beef||20,50||56||1148|
- Average offer price (AOP) = average of the offer
Average bid price = (9.50 + 10.70 + 15.20 + 12.50 + 20.50 + 18.90 + 11.50) ÷ 7 = €14.11
- Average asking price (ARP) = average price of dishes asked (sold)
Average asking price = 6517 ÷ 466 = €13.98
Price reaction index = PMD ÷ PMO
13,98 ÷ 14,11 = 0,99
En conclusion, l’indice IRP de 0,99 <1 indique que vos client choisissent un peu plus les plats les moins cher. Ici le travail sera d’ajuster la fourchette de prix en supprimant les plats en haut de la gamme et/ou en ajoutant les plats en bas de la gamme à la carte de votre restaurant.
In this method, as you cannot influence the average demand, you modify the supply. It may be possible to adjust some prices, but it is best to combine this technique with other methods.
Fourth principle: The emphasis
Finally, the Omnes Principle of promotion is to change the price of a dish. The prices offered should always be in the median zone (average price). A promotional dish or menu is not a low-priced product, but a dish offered at an attractive price that aims to increase its popularity. The aim is to highlight certain dishes or menus in order to increase their popularity. The objective is to communicate on high-margin items, dishes and products with a high profit potential.
In conclusion, a restaurant's pricing policy is the result of a combination of methods. And a restaurant management software can facilitate the application of the Omnes principle. Other techniques such as menu engineering will complement these methods to optimise the profitability of your menu.