Pricing Egg-celence
The importance of price leadership
You don’t need a professional pricer to tell you that egg prices have increased a lot over the past few months. While the long term average price of a dozen eggs is about $2, the national average reached $4.15 in December 2024 and $4.95 in January 2025.
These cost increases are primarily due to the number of commercial egg laying hens which have had to be destroyed due to outbreaks of avian flu.
In November of 2023 there were 322.4 million table-egg laying hens in the US with each hen producing an average of 300 eggs per year. That’s about 97 billion eggs being consumed by Americans each year.
However, in the two months of December of 2024 and January 2025 alone, 34.3 million laying hens were culled due to avian flu. That means that commercial egg production is down more than 10%. And as we all bid to get hold of the remaining 89% of egg production, prices keep going up.
The national chain Waffle House took action back on February 3rd, announcing that they were applying a $0.50 per egg surcharge to their normal menu prices. Fifty cents may not sound like much, but it adds up quickly with Waffle House’s egg-heavy menu. The chain serves an average of 745,000 eggs per day, which means the surcharge will produce $372,500 in additional revenue per day.
Three weeks later, Denny’s, another major restaurant chain known for their breakfast menu, has followed suit, though they report that their surcharge will vary in amount by location.
The overall approach that both these restaurants have taken is good. As I discussed a while ago, if you need to pass on to customers an additional cost which may be temporary or variable and you are willing to lower your prices back to their original levels when that additional cost returns to normal, doing so with a surcharge is a good way to be transparent with your customer about the incremental cost you are passing on while making it clear what normal prices you will return to when the heightened costs are over.
However, there are significant ways in which Waffle House showed price leadership with their egg pricing, and these suggest that Waffle House will do better financially than Denny’s.
First of all, Waffle House took pricing leadership by taking the first move in the marketplace. This might seem like a problem rather than a benefit. Doesn’t it expose Waffle House to negative customer reactions while their competitors, such as Denny’s, waited to see what would happen?
There is some risk in moving first, but there’s also a large financial benefit. By the time that Waffle House instituted their egg surcharge they had already experienced $5.7M in increased egg cost in January of 2025 as compared to the previous January. Elevated egg prices were costing them $183k per day.
If Waffle house had waited another three weeks until when Denny’s took action, they would have lost another $3.8 million. And if Denny’s hadn’t acted then, because it was afraid to move first, both chains might have continued to suffer millions in elevated egg costs per month with nothing to mitigate it.
By moving first, Waffle House improved their financials immediately and also made the overall market segment of casual breakfast dining more profitable through their leadership.
Denny’s approach saved them the from the angst of moving first in a competitive market, but they will probably never be able to make up the millions they passed up by waiting longer to institute a surcharge. When prices go down, value conscious customers will expect the surcharges to go away. If Waffle House again moves first, Denny’s will be forced to follow and will be left with fewer total weeks of surcharge, but the same number of weeks of elevated cost.
The other thing that is superior about Waffle House’s approach is its simplicity and transparency. $0.50 per egg is a simple price which people can easily wrap their heads around, and it was communicated nationally and clearly so that people know what to expect. Denny’s, on the other hand, did not communicate a consistent number, but said that many restaurants would be applying a surcharge which would vary by location.
The beauty of the $0.50 surcharge at Waffle House is that although it sounds like a low and simple amount in the context of restaurant prices, it’s actually more than the cost increase that Waffle House has experienced. $0.50 per egg is $6 per dozen, which is certainly more than the national average price of a dozen eggs has gone up thus far.
Some have asked whether this makes the Waffle House surcharge greedy or unfair. However, it’s worth remembering that even Waffle House did not institute their surcharge until after they had absorbed increasing costs of eggs for months. And additionally, Waffle House does not know how high the cost of eggs will actually go. Taking a single clear move does commit them to this particular price unless egg costs increase dramatically more, so it makes sense for them to build some additional room into the number.
Your business may not involve selling eggs, but some of the basic principles involved here may be useful to you:
If you face a large but hopefully temporary cost increase which you need to pass on to your customers, doing so with a surcharge rather than changing your regular prices is a transparent way to pass on the cost.
Once you determine that your costs have increased enough to require a pricing action, take pricing leadership in your category by making a clear move even if your competitors have not yet moved. Your margins will improve before theirs, and you will keep your whole category more profitable.
A clear and transparent pricing action is better than a complex and non-transparent one. Don’t overly complicate your pricing if it’s possible to get the job done with a simple, clear move.