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Overview: One of the most common errors new food service operators experience is pricing their food too low, thinking they can undercut competitors.

1. Based on what you have learned in the course about food cost control, food cost percentage, budget, and menu pricing, explain two reasons why undercutting competitors is a poor strategy for success. Focus on the effect it will have on the overall business. (Answer in 3-5 substantial sentences.)

2. Using what you have learned in this course, determine the lowest possible menu selling price for a slice of cheesecake on your menu. The cheesecake contains 12 slices, and the whole cheesecake costs $11.75 to make. If your restaurant's desired food cost percentage is 30%, what would be the lowest menu selling price for a single slice of cheesecake?

Note: Provide all the math calculations and use dollar signs ($) and percentage signs (%) when needed.



Answer :

GinnyAnswer

Final answer:

Undercutting competitors can harm profit margins and brand perception; Calculating the lowest menu selling price involves considering food cost percentage and production costs.


Explanation:

1) Undercutting competitors is a poor strategy for success in the food service industry for two main reasons:

  1. Impact on profit margins: Setting prices too low can lead to reduced profit margins, impacting the financial health of the business.
  2. Perceived value: Customers may perceive low prices as indicative of lower quality, affecting the brand image and customer loyalty.

2) Calculating the lowest menu selling price for a slice of cheesecake: Given that the whole cheesecake costs [tex]$11.75 to make and the desired food cost percentage is 30%, the lowest menu selling price for a slice would be $[/tex]1.47. This calculation ensures profitability while maintaining competitiveness in the market.


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