All communities struggle with their retail pricing when adopting an a-la-carte policy for the first time. Traditionally, communities have provided fixed meal plans where a-la-carte pricing does not even enter the equation, other than perhaps at the coffee shop or café for a very limited menu. 

Many not-for-profit communities also hesitate to make a profit and insist that pricing should be set to merely cover food cost. But profit, even in a not-for-profit organization, is not evil, but rather the means to a healthy, self-sustaining dining services operation.

DINING DOLLARS

Consider that for meal plan purposes, the item pricing is irrelevant since you will give credits (in the form of  dining dollars) to residents to purchase food to offset the change from a fixed quantity of meals. So if you set your retail prices low, you need to provide fewer flex dollars to your residents each month than if you were to set the retail prices high. In the end, you want to ensure that with the dining dollars issued, the resident can reasonably replace the number of fixed meals that you originally provided them under the old meal plan.

ADDITIONAL COSTS

The real question operators should ask  is: "What should the resident and guests pay for additional meals once the dining dollars are gone?" You should set retail pricing to result in a profit after total expenses and overhead are covered. As a general rule of thumb, raw food cost should be approximately 25 to 35 percent of your retail pricing. The variance in this percentage is due, in part, to the service delivery environment. Self-serve cafés or buffets may have a higher average food cost, offset by lower labor costs; while fine dining table service may have lower food costs offset by higher labor costs.

Next consider your competition. What do your competitors charge for similar food items in a similar dining environment? (Hint: Your competition is NOT other retirement communities, but rather any eating establishment within a 20-minute drive.)  If you don't know what your competitors charge, you should because your residents inevitably will. Human nature drives us to look for value. If you provide the same quality, price and ambiance as your competitors, residents will frequent your in-house venues rather than traveling to an outside dining facility most of the time.

You also have a distinct advantage over your competitors in that tipping is typically not permitted in a retirement community setting. In the case of a not-for-profit community, sales tax is not applicable either, making your in-house dining experience more financially attractive to residents. The benefits of a-la-carte pricing far outweigh any drawbacks since it employs a fair pay-for-what-you-eat policy.

CONSIDERATIONS

Consider these points before making your decision:

• Residents may enjoy additional meals under a dining dollar policy vs. fixed meal credits since they can stretch them across a larger number of smaller meals if desired.
• Item sales reports, as a result of a-la-carte service, will help measure the success or failure of menu items, including accurate pricing.
• Item sales reports as a result of a-la-carte service will assist in inventory management and better raw food/ingredient buying practices/
• Even with a dining dollar plan, if it is still a use-it-or-lose-it plan residents may feel you are "stealing" money from their account at the end of a period. Communication with your residents will be paramount to a successful adoption of this, as with any, new plan.
• If your community is open to the public or you wish to charge more for guests, you might set your default retail price slightly higher and consider a discount for your residents and staff.
• A-la-carte in fine dining settings is more complex and requires an investment in technology to manage the process effectively.

Setting up an a-la-carte environment for the first time can be a daunting task whether you are an existing community or a brand new facility.  A new facility has its advantages of being a clean slate and not having to worry abou resident resistance or ensuring value from a pre-existing fixed meal plan.  On the other hand, with no historical sales and operational track record, setting prices and menus can be a tricky task even for the most experienced manager.

If you are unsure about how to set up a-la-carte pricing and service delivery, contracting an outside consultant experienced with and specializing in retirement communities would be a wise investment that could bring a handsome return.

Kevin McIntosh is a partner and vice president of business development at Cardwatch Licensing Ltd.