Should I cut prices at my small cafe? Dave Fishwick replies

I opened a small cafe before the pandemic and I struggled when the price of raw materials and my energy bill increased significantly.

I also gave my staff a small pay raise to help with the cost of living crisis, which meant that costs for customers went up.

I have been very lucky that my customers have remained loyal.

Now that costs are coming down and I’m more comfortable with my profits, I’m considering reducing costs to pre-pandemic levels.

Is this a good idea to thank my customers?

Or have they gotten used to the current price and should I give my staff another raise instead?

Dave Fishwick, Doctor This is Money, replies: We’ve all seen on the news and in stores that food prices have skyrocketed.

Inflation has been running at double-digit rates in recent years.

Some products have been more affected than others – one of the hardest hit products, sugar, for example, has risen by more than 40 percent in the previous year alone.

Even if price inflation were to fall to zero in the coming years, unless there is deflation, prices will still be significantly higher than they were before the pandemic.

If you lower your prices to pre-pandemic levels, you will make significantly less profit margin than you did before the pandemic.

I don’t think most customers expect prices to return to pre-pandemic levels, especially in the food industry.

While things may be going well right now, you can’t reclaim the profits you missed out on when times get tough again. Inflation remains stubbornly high and may rise again before falling back.

And as fall rolls around, your utility bills will once again take up a larger portion of your spending. Energy companies are already warning of price increases this winter.

I have helped many cafes over the years with business loans and advice, and generally I would advise you not to lower prices as rents and costs will fluctuate and go back up.

Maybe you can build a cash buffer and if costs rise again you can afford to weather the storm.

I imagine you know who is struggling with money because of what they order. Some customers may have felt the increases, while others barely noticed.

Perhaps you can pass on more of the extra cost to those who can afford it by having higher margins on the products that people are accustomed to paying higher prices for, such as cappuccinos and croissants.

Keeping the cheaper items on the menu, such as tea and toast, priced as low as possible helps those who need it most.

Perhaps you can get free refills of tea and coffee, with special meal deals.

You can also have discounted rates for retirees and do an early bird menu and special offers for retirees. This would increase sales in your quieter times and increase profits overall.

It’s good to take care of your staff, and maybe it’s time to give them a raise, if they haven’t had it lately.

I believe in looking after staff and treating them the way you would want to be treated if the shoe was on the other side.

You could reward employees with pre-holiday or Christmas bonuses instead of increasing their salary. This way your ongoing fixed costs remain the same.

Good luck.