How Will Inflation Affect Restaurants?
Inflation is inevitable, we all know this; however, what doesn’t have to be inevitable is the effect it has on your business. By diversifying your approach to combating inflation, you’ll have multiple opportunities to lower your overall costs and minimize the risk to your business. This article will discuss the effects that inflation may have on your restaurant from food cost all the way through to the effect it may have on your customer base, followed by a number of ways that you will be able to address these in order to lower the overall impact they have on your business. Let’s hop on in!
Rising Cost of Ingredients
As time moves forward we see food cost increasing on a regular basis. From meat and poultry, to produce and dairy, the cost of feeding ourselves is growing at a pace that makes it difficult for not only consumers purchasing groceries, but also for restaurants purchasing ingredients. This creates a difficult decision for establishments looking to provide a top quality product for customers while also turning a profit. Do you start to use lower quality ingredients, attempt to negotiate better pricing with suppliers, or start to reduce your menu size?
Rising Labor Costs
Not only does the cost of food increase, but so too does the cost of labor. While the level of wages do not typically increase to match the rate of inflation, they must increase in order to provide your employees with the ability to provide for themselves. There is no cut and dry answer to approaching this issue, as there will always be at least 1 other party affected in a negative manner. If you reduce the number of employees on at any given time, you may decrease the level of service afforded to your patrons, as well as reducing the income of your employees. If you keep the number of employees on the floor at the same level, your business will continue to see labor costs rise. There is no simple answer to managing labor costs, as you want to show your employees the respect they deserve, as well as develop morale and motivation, but at the same time, you can’t allow the labor cost to raise to an unmanageable level.
Lower Disposable Income for Customers
The effects of inflation are not only felt by you, but also by your customers. As you have to spend more on your ingredients and staffing, your customers will have to spend more on groceries, leaving less to spend on luxuries such as eating out. A new issue presents itself: how do you convince your target market to continue to frequent your restaurant when they have less to spend?
Now that we’ve gone over some of the pains of inflation, let’s hop into how you can make changes to combat it.
What can you do to Battle the Effects of Inflation?
Increased Scrutiny of Inventory Management Practices
While it may seem like a basic concept, using effective inventory management processes can help you curb inflation in your restaurant. How? By being able to rationalize your decisions and back them up with critical data through the use of multiple reports. From tracking your usage and waste, to finding which menu items are bringing your inventory costs up, you’ll be able to fine tune your operations and get back on the road to success.
Menus continue to be one of the most hot button issues restaurants face. Whether it be the prices, the size, or which categories to offer, there is always analysis or modification that can be done to find the sweet spot in not only the area that you service, but to also reflect the economic climate of that time.
By costing out recipes, you’re able to find out the real cost to your organization for each dish sold, and pairing that information with usage and sales data allows you to quantify the changes that should be made to your menu in order to help you maintain or achieve profitably, and not necessarily by raising your prices.
The cost associated with many ingredients is increasing, and some are increasing at a rate greater than others. This leads to many restaurants examining how ingredients are used, whether they should be included at all, or if they can be replaced.
If we look at meats and poultry as an example, the prices have increased by as much as 15% since the beginning of the pandemic (SOURCE). While this increase may not feel as substantial to consumers shopping for themselves, you will definitely feel the increase operating an establishment that orders large amounts of these ingredients on a weekly basis. A potential solution to this is changing your cuts to more affordable ones, or switching proteins entirely. While some recipes may have to change fundamentally, or even be removed, this change could have substantial impacts to your bottom line.
Simply changing proteins or removing menu items may not be an option. Taking a closer look at the use of ingredients, we can see that ingredient substitutions may not simply be changing the ingredient in a recipe, but changing the supplier. Different suppliers may be able to offer different pricing or payment terms, rebates, or a better delivery schedule. By deciding which benefits will best serve you and help you navigate the effects of inflation, you’ll be able to find the ideal supplier to grow with.
Look to Cut Costs in Other Areas
While you should always be looking to curb your food costs, by stepping back from the kitchen and taking a critical look at your entire operation from top to bottom can provide you with important cost saving opportunities, whether that be in labor, methods and supplies used for cleaning, third party vendors, or equipment being used. By cutting costs in areas other than simply changing ingredients or removing menu items, you’ll be able to continue providing the same experience for your customers.
Harness the Goodwill of Your Local Customers to Build Community
While the effects of inflation will reduce the disposable income of your target consumers, you can build loyalty and awareness through local promotions and events that will help build your base of returning customers. By building and maintaining a community of loyal customers, it will be easier to make other small changes that can affect your bottom line than if you’re just looking to establish your base and provide a consistent experience and menu. By building that goodwill, you show that you care about the communities your establishments reside in, and in return, your community will support you.
Take Advantage of Free Advertising Opportunities
While your costs continue to increase, you can look to free advertising and promotional opportunities that may arise, whether that be participation in local events, or being featured on TV or radio stations. Using these to your advantage can help curb some costs when cash flow is lower, all while having the ability to maintain your brand’s awareness in local markets. Reach out to your local media and find out if any opportunities are available.
We left raising prices to the end, as this is a last resort. You want to exhaust all other options before doing this, as your customer base will be less responsive in a positive manner. If inflation has already reduced the disposable income of your customer base, raising prices only hurts them more. While it will help you bottom line, you will likely feel the negative impacts being felt, and potentially see a drop-off in the number of patrons attending your establishment.
As you can see, there are a number of different methods and solutions to help combat the effects of inflation and keep your business on a positive trajectory. The solutions provided help to balance your needs as an operator with those of your clientele, and we believe this will have a positive effect on your establishment in the future.