Restaurant operators nationwide are facing surging inflation, with food prices continuing to rise. Experts say that supply chain disruptions are one of the key factors driving up production costs, and, unfortunately, it’s unlikely the issue will be resolved any time soon.
To combat the rising costs, increasing menu prices is often inevitable. But there are other tactics you can take, too. We look at some ways to offset inflation, along with best practices when it comes to upping the costs for your customers.
Among the most obvious ways to deal with inflation is to raise menu prices. But for this to be successful, it’s rarely as simple as adding a few dollars across the board.
“You can’t just blindly raise prices – if you don’t do it the right way, you’re not only going to impact your customers, but you could negatively affect your business,” says Josh Sharkey, founder and CEO of recipe software company Meez. “You have to look at the velocity of sales of different items, which ones have the best economics for you internally, and see where the wiggle room is.”
Using data to make small changes can have a huge impact on your profit. Start by assessing your menu mix. And then consider small price raises on your top items. “Customers are becoming more understanding of the impact of the economy on the food they’re eating, and if something’s the most popular item and you slightly raise the price, you’re not likely to see much attrition from that,” says Sharkey.
The key is to make incremental raises over an extended period of time. Inflation and food prices are putting pressure on not just operators, but customers, too. The Consumer Price Index rose seven percent in the year through December, and the price of food grew 6.3 percent. It’s a fine line between raising prices and losing customers, and any large menu hikes aren’t likely to go unnoticed.
“A good rule of thumb – spread the pricing impact you want to achieve over two to four pricing rounds per year,” says Richard Delvallée, senior vice president of consulting services of Revenue Management Solutions. “Generally, RMS recommends keeping increases at or below 1.5- to 2-percent within each round.”
After raising your prices, closely monitor how this impacts your customers’ behavior. If it hasn’t changed, this indicates there’s room for further opportunities moving forward. “On the other hand, if you raise prices and begin to see significant changes in purchase behavior, you should take a hard look at the data and quickly understand what corrections you need to make,” says Delvallée.
Some restaurants are forgoing menu price hikes in favor of adding a universal surcharge, ranging everywhere from three- to 15-percent on every ticket. While this involves less menu analysis, it requires more upfront consumer education. Transparency is important to avoid sticker shock when customers receive the check. Use this as an opportunity to give insight into the challenges your restaurant’s facing.
“Out of necessity during these hard times, we will be implementing a 15-percent inflation charge on all tickets,” said Court Street Grille of Lincolnton, North Carolina in a note to customers, who went this route last November. “We ask for your patience as we manage through global supply chain issues, increased food, labor, freight, and shipping costs.”
If worried about the impact a surcharge could have on parts of your customer base, consider making it optional. In December, restaurant group Founding Farmers issued a five-percent surcharge, which they’ve framed as a “restaurant recovery charge”, that can be removed if guests raise concerns. Co-owners Michael Vucurevich and Dan Simons say they opted to use a surcharge because it’s easier to adjust to meet the volatile conditions of the pandemic. If you’re not utilizing a QR code menu that’s easy to adapt, you may want to opt for this option, too.
“Rather than raising and lowering prices, potentially multiple times as pandemic-impacts ebb and flow, the use of a fee allows our prices to stay the same, and the fee can come and go,” wrote Vucurevich and Simons in a statement on Founding Farmers’ website. “In addition, the administration of a price change in a restaurant is real work, and many restaurants have less office and administrative support than ever. To change every single menu item price in the database and reprint our menus only to potentially change it back is additional cost avoided by using a fee.”
Restaurants across the country are tightening their menus and reconcepting with strategy in mind. According to Datassential, a food industry market research firm that analyzed over 4,800 menus across the U.S., 60-percent of restaurants reported reducing their menu size in 2021.
Smaller menus bring two obvious advantages. They’re generally easier for staff to execute – particularly valuable when dealing with a short-staffed back of house. And they help eliminate waste.
“Start by considering product availability. Factor in labor components like item complexity – ‘Can we make this with limited staff?’ – and finally, compare items’ profitability to determine if each item should make the revised menu cut,” says Delvallée. “In other words, shift consideration from ‘Can we do it?’ to ‘Should we do it?’.”
There are a variety of software platforms, like Meez and Apicbase, that you can utilize to help take the guesswork out of engineering a menu, incorporating accurate food cost calculations and POS sales data. Generally monthly subscriptions run from $15 to $100.
When menu concepting, look for ways to cross-utilize ingredients across dishes. “When you consolidate, you have less types of products in the door, which means you’re inevitably going to save dollars,” says Sharkey. “The more various types of products you bring in the door, the more opportunities you have to waste them.”
At certain times, every single year, you can predict price surges for a variety of different ingredients. If you’re really trying to trim costs, plan your menu with the market in mind. “Every year it happens – limes just go up in the spring. Try to identify the trends so you can plan ahead,” says Sharkey.
Your vendors should be able to provide you with market reports. Of course, if your biggest seller is guacamole, you’re just going to have to stomach the volatile prices of avocados. But you’d be smart to establish strong relationships with your vendors so you can gain a heads-up on when prices are about to increase on ingredients you use often. When you can, remain flexible, whether that means sourcing an alternative cut of meat or looking towards alternative sources of protein when called for by the market.
“In general, it's about finding a balance between offering different kinds of proteins and ingredients throughout your entire menu, so that when cost changes on a specific item, you are not so dependent,” says Delvallée.
When looking at the bigger picture, don’t forget the basics. In some cases, it may be beneficial to scale back portion sizes on certain items. You’ll want to observe customer behavior to decide which items you adjust.
“Watch your customers – go into the dining room and see what they’re eating,” says Sharkey. “Are people eating the entire salad you’re serving? Does it need to be 16 ounces or could it be 14 ounces? For something like cheese, the difference between three ounces and four ounces, if you’re selling thousands of orders a week, is a big deal.”
Again, look for where there’s wiggle room. Are there side dishes that are getting frequently tossed in the trash or ingredients you can scale back on? Depending on your business model, you may even try enlisting your managers for real-time customer feedback. As with price raises, it’s important to use data to back the changes you’re making for success.
Depending on your restaurant, now might be the time to start really flexing your creative culinary capacity. Can you ditch the beef and instead transform, say, broccoli stems into an award-winning dish?
“There are thousands of examples where if you really know how to cook, you can make delicious food out of overlooked ingredients or ingredients that get thrown out,” says Sharkey. “For example, you can beautifully roast a Vidalia onion and stuff it with rice and make it something incredible, and that’s an onion that costs you 19 cents. Customers aren’t just paying for the food, they’re paying for whatever experience you’re giving them.”
Of course, if wiping certain menu items is going to leave your regulars upset, get creative within your boundaries. Take chicken, for example. Wings are now subject to not only cost increases but supply chain issues, and now might be a good time to find creative ways to incorporate the whole chicken rather than a specific cut. “The same can be said for beef right now,” says Delvallée.
The more you can expand your existing toolkit and think outside the box, the more opportunities you have to create new dishes that aren’t just profitable, but that make you stand out among your competitors.
“Necessity breeding ingenuity – this is where great dishes are born out of,” says Sharkey.