a) Overall percentage gross profit and basic price levels:
The management must consider the gross profit they give in order to get the targeted profit. Also,
the following factors will determine the basic price levels;
1. The type of establishment
2. Average spending power
3. Type of client
4. Portion size
5. Food quality standard
6. Competitors
7. Location
b)Departmental profit margin
A business with different departments may have different price levels and may operate at
different percentage of gross profit in each department. Eg a hotel may aim at 65% GP on all
banqueting sales and 55% in all other food sales. When formulating a price policy it is necessary
to identify all the selling outlets and determine the correct gross profit margin of each outlet.
c)Gross profit differentials
In most establishments, they normally don’t apply a uniform rate of GP to all items on a
particular menu. Some items will have higher % while others will have a lower one. The
projected sales mix will determine the cost of sales for each department of the business eg food,
beverage, tobacco, sundry, etc.
d)Other related matters
Most catering establishment has additional charges to their prices of meals or in their bills.eg
1. 5% cover charge; this is the charge to customers before entering the establishment. It
discourages people going in for fun in the establishment without any aim.
2. Minimum charge; its charged in an establishment operating in full capacity and is to
exclude low spenders in order to have space for those who can afford. It is mostly
introduced during peak period.
3. Service charge; this is a charge to customers for all the services offered.
4. Value added tax; this was introduced in 1975 in the UK. VAT is chargeable at a standard
rate of 15% on the supply of food and drink for consumption on the premises in which it
is supplied or for immediate consumption near the place of supply. This means sales by
restaurants, cafes, hotels, pubs, snack bars etc. the following items are not chargeable;
a) Accommodation where the stay is in excess of four weeks.
b) Visitors paid out
c) Newspapers sold to guests.
NatalieR answered the question on May 16, 2022 at 12:04
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