How To Price Local Foods On Your Menu

If you’re in the food service industry then you’ve heard about “local food” – ingredients sourced locally that are usually marketed as fresh, organic, and environmentally sustainable.  And while local has fast become a red-hot trend in the restaurant business, some in the industry have wondered how to make local profitable.  Food cost is usually higher for local ingredients, and in an era of price wars and mass discounting, margins have become razor thin as it is.

Well, at least according to one recent study funded by the Leopold Center for Sustainable Agriculture at Iowa State University, consumers are willing to pay somewhat more for meals that are sourced locally.  In the study, restaurant patrons were given the choice between locally and non-locally sourced meal selections.  When the two options were priced the same, customers showed no significant preference one way or the other.

But when the locally sourced option was priced 18% higher than the non-local one, customer preference for the local option soared.  This doesn’t mean you can price locally sourced entrees wherever you want, however.  At 36% above the non-local option, customers went with the cheaper selection every time.

So what does this mean? Well, customers obviously value local food up to a point.  This most likely stems from the perception that local food is fresh and more sustainable.  If you’ve started sourcing some or all of your ingredients locally, then this study indicates you have some wiggle room on pricing, especially if you employ the Menu Engineering Theory of Relativity.

On the other hand, going through a major menu revamp just so you can offer local ingredients may not make a whole lot of sense.  Remember that consumer tolerance for large price hikes on entrees with local ingredients did not do well.  So unless there are readily available local ingredients that fit naturally with your menu and concept, the slightly higher value consumers place on local foods may not be enough to make economic sense.

This rings especially true when another aspect of this study is taken into account: that consumers did not seem to have a special preference for restaurants that offered locally sourced food versus those that did not.  That means consumers place a higher value on local ingredients when they encounter them, but those ingredients do not seem to change buying habits in any significant way.

Therefore, sourcing food locally makes sense for restaurants only when ingredients that are easy to incorporate into an existing menu at a reasonable price.  If you focus on keeping it simple, then local ingredients can mean some extra margin.  Finding that sweet spot will take some experimentation, but it can definitely pay dividends provided your pursuit of local ingredients doesn’t interfere with the bread-and-butter options on your menu.