August 11, 2022

Operators search for ways to battle inflation

Restaurateurs look at reducing rising overhead costs.

If your customers ask why you’ve increased your prices, be upfront with them about it. If they understand you’re struggling to keep up with increased operating costs, they may be more accepting of it.

The country’s current two-step with inflation couldn’t have come at a worse time.

Supply chain issues have caused wholesale food prices to increase 16.3%, the war in Ukraine resulted in record gas prices, and an Avian flu outbreak reduced the number of poultry and eggs available for processing—and that’s just in the past year. 

Add to that the record low unemployment that has exacerbated the industry’s labor shortage, pushing operators to raise wages to attract talent.

Operators don’t want to raise their menu prices, but they have few choices. The conundrum is how to deal with their higher operating costs and keep cash-strapped customers dining out with the same frequency. 

Larry Reinstein, founder of LJR Hospitality Ventures, says consumers still want to dine away from home, but because they’re having to pay more for basics, they’re cutting back on how often they dine out—or even get coffee—during the week.

“When customers have less money to spend at restaurants, they’ll compensate by going out less or spending less when they do go out,” he says. “A bigger problem is a potential loss of traffic altogether. We’re in a tough situation. At some point, we’re going to have to ask ourselves how much further we could go on pricing without losing customers already challenged by what they’re paying.”

As the industry confronts the challenges at hand, contemplating these inflation-fighting moves might help.

1. Streamline menus. Simplify what you serve, Reinstein says. Focus on offering your best-selling items since those are the ones that drive sales. Make tough but necessary decisions on what to include and what to remove from your menu. He also suggests using items in season as they cost less than if purchased out of season. Imperfect produce is another option; outward appearance doesn’t affect flavor. 

2. Increase technology. Incorporating the latest technology into your operations could help in several ways: Robotics in operations isn’t meant to replace labor, but rather free employees to optimize their skillsets and productivity, especially when it comes to customer experience. Exploring more deeply the analytic tools embedded in your POS and inventory management software can help you not just identify sales, best sellers and busiest sales times for menu items but your highest and lowest margin items and more accurate inventory forecasting and pricing.

3. Reduce food waste. Technology can also help you weigh, track, and analyze the food waste you generate. Andrew Shakman, co-founder and CEO of LeanPath, says tracking food waste is the most effective way to prevent food waste, and that the benefits of doing so, particularly when inflation and increased operating costs are so challenging, are more of a priority than ever before. 

In addition to tracking, restaurateurs can also find creative ways to use and reuse existing ingredients in different ways. Pam Schwartz, co-owner of Ranch 45 in Solana Beach, Calif., a restaurant that focuses on steaks and other beef dishes, now purchases everything nose to tail, working with a butcher to render full goods from it. She even melts fat into tallow to subsidize her butter-based shortening in pastries, cakes, and breads. Now her butter needs average 50 cents a pound instead of the $3 or $4 a pound she’d been paying.

4. Explore temporary surcharges or fees. As the cost of materials and supplies continue to skyrocket, restaurateurs are facing the difficult situation of having to charge more to offset increasing prices. Some are adding temporary inflation fees to the bill while others are exploring charging extra for items like condiments.
5. Raise menu prices. Increasing menu prices may be a last, but necessary, resort. Base any increases on what the market is willing to bear and the value delivered, rather than just to cover growing costs. Avoid raising prices across the board; instead, identify the items that can withstand a moderate price increase.

If your customers ask why you’ve increased your prices, be upfront with them about it. If they understand you’re struggling to keep up with increased operating costs, they may be more accepting of it. When you do explain, do it with honesty, make your story personal, and share why it’s important to the business to raise prices a bit.

This article is the first in a series exploring the challenges caused by inflation and what some industry operators are doing to sustain margins.