No doubt, restaurants are feeling squeezed with the ongoing pressures of inflation, a tight labor market and even rising transaction fees from credit card companies – and the costs are too high for operators to absorb. As a result, many restaurants are finding creative ways to pass their extra expenses on to consumers. According to a recent article in the Wall Street Journal, fees with such names as “fuel surcharge,” “noncash adjustment” and “kitchen appreciation” have been appearing regularly on restaurant checks in recent weeks. How – and when – you present such costs can have a significant impact on your guests’ response to them. For instance, presenting a surprise list of incidental costs tacked onto a bill can make a guest feel nickel-and-dimed – or worse, that you’re not being honest with them. It’s better to present any added charges under a single umbrella and make guests aware of them at the outset – verbally from the server, in a note on the menu, or both. In a report from Inc., Zachary Weiner, CEO and founder of Finance Hire, an outsourced financial controller for small businesses, said that even though people are well aware of inflation, being transparent about any extra fees and where they are coming from can go a long way in helping guests understand why they are needed. Resuming “business as usual” has been impossible for many restaurants in the current economic environment. As brands have increased prices in recent months – typically multiple times – many are needing to take new approaches to close the profitability gap. A recent Restaurant Business report described how Chili’s, which has increased prices six times in the first nine months of its fiscal year, is now overhauling its service model and menu to drive not only better efficiency now, but also better adaptability down the line. Wyman Roberts, CEO of Chili’s parent company Brinker International, said the brand’s new menu, which will be more costly, will reduce operational complexity, restructure their value proposition for better margins and provide pricing flexibility in the future. The company is also aiming to operate more efficiently through a service model that uses handheld devices and more food runners (including robotic food runners in some locations) to help reduce the labor they need. Even if you’re not already planning to overhaul your business in a similar way right now, the efforts restaurants are making to eke out profits will change the competitive landscape for everyone – and could force changes on others. As you look at your operation, it’s more important than ever to address pain points and friction wherever you experience them – and consider approaches that may make your restaurant look a lot different than it has in the past. Your service model, menu, labor strategy, foundational technology and marketing strategy should all be on the table as you consider how to prepare your business to succeed now and adjust as needed in the future. Rare, difficult-to-source ingredients are so 2019. At a time of high inflation, supply-chain strain and increased awareness of carbon footprints, it has become far more fashionable – and yes, far more necessary – for restaurants to take a pantry-to-plate approach. That means creating mindful menus that make the best use of ingredients you have in plentiful supply each season. Most items you order should be workhorse ingredients with a range of applications – as the star of one dish and a supporting player in another, for example, or as a reliable contributor of depth, texture or nutritional content in a variety of dishes. As an extension of that, now is a good time to review your portion sizes, find creative ways to use every part of an ingredient, and repurpose any leftovers into interesting specials. Food waste costs the hospitality industry over $100 billion a year, and more than 70 percent of that waste occurs before it even reaches a guest’s plate. Adopting tools that automate your inventory management, ensure you’re spending money on the best-value ingredients available, and precisely measure the size of a portion can help you ensure you’re not leaving money on the table. Menu price inflation hit a 40-year high in March as operators continued increasing prices to compensate for their own spikes in expense, according to federal data released in April. But as consumers face escalating costs at home and restaurants struggle to bring guests back in high numbers, how much of a cost increase on the menu is too much? Matthew Lukosavich, strategy director for the restaurant division of Vericast, told Fast Casual recently that he advises operators to start by raising prices in line with inflation, which is currently around 7-8 percent. From there, try to stay within your ideal ratio for food cost to gross food revenue. Then, find ways to elevate experience and value to make restaurant meals feel more worthwhile. That could mean keeping costs the same but adjusting portion size or substituting a different cut of a meat. You could also lean on limited-time offers to help repackage or resize profitable items. Scrutinize your food and labor costs – maybe there is a marinade that you have always prepared in-house that can easily be swapped out for something ready-made. Consider changing up how you promote your most profitable items through photographs and placement on your menu. To be sure, some costs will feel too high for guests to bear – but who knows? If their spending limit is a bit higher than you think it is, you don’t want to leave money on the table. On the other hand, talk of recession on the horizon may mean your guests are more cautious than usual. Finding ways to make their order feel worthwhile can give you a better sense of where to place that cost boundary without losing profits or guests. The value menu looks a lot different nowadays at a wide range of quick-service and fast-casual brands. McDonald’s, Denny’s, Burger King and Domino’s are among the companies that are skinnying down their most economical meals. The changes have included decreasing the number of chicken nuggets from 10 to eight, removing price caps on value-menu items and raising the prices of individual items across the menu, according to a recent Wall Street Journal report. Consumers are noticing the changes and facing a decision: Is this restaurant meal worth a few extra dollars (or a little less food) if I can find something less expensive at the grocery store? For some restaurants, this may mean recasting menu items as something special vs. a means of saving money. Understanding your menu cost has become more important than ever in the midst of inflation and supply shortages. Last year, restaurant prices increased 6 percent, the highest jump in nearly 40 years. But just as important as pricing could be how you’re presenting your menu items and promotions to your guests. Mine your data to better understand the dishes your guests love and when they are ordering them. What drives them to order from you? Is it convenience? An end-of-the-work-week treat? Tapping into what motivates them can help you frame your menu in a way that makes the decision to place an order an easier one for them – even if the bill is a little higher right now. Amid supply shortages, rising food prices and wages, and inflation increasing at the highest rate since 1982, restaurant operators have had no choice but to pass some of their costs on to customers. Accordingly, menu price inflation hit a 39-year high in November. Data from the U.S. Bureau of Labor Statistics indicated that prices for limited-service restaurants, which have been hit especially hard by labor shortfalls, have increased nearly 8 percent in the past year, while prices for full-service restaurants have increased 6 percent. While the environment continues to pose challenges to restaurants, there are steps operators can take to strengthen their position. In the back of the house, it’s more important than ever to have a keen grasp of menu costs and to use forecasting tools for inventory and sales in order to minimize waste and find suitable substitutes for ingredients that aren’t available. In the front of the house, it’s crucial to show customers that you provide an experience worth paying for – and one that many of them continue to crave as the pandemic keeps people at home. Consider how to make your offerings special – by elevating the dining experience in-house and developing creative menus that guests wouldn’t prepare for themselves at home. Finally, while you don’t necessarily want to draw guests’ attention to price increases, you can share the efforts you are making to contain costs and source quality ingredients. After all, consumers are paying more at the grocery store now too – so a higher bill at their favorite restaurant shouldn’t come as a shock. Restaurants and consumers alike have experienced the effects of the current supply-chain crisis, whether in the form of product shortages, delayed shipments, or changes in store hours due to reduced labor availability. (According to a recent National Restaurant Association survey, 75 percent of restaurants have been forced to change menu items due to supply chain issues.) While the challenges are widespread, many of them can be minimized. Consider these actions: Where possible, shrink the number of links in your supply chain between a food item and your guest: Pre-pandemic, this was about helping the climate and cutting waste, whereas now it’s also become a necessity for any restaurant that wants to be more certain of the items it will be able to offer on its menu. Plan farther down the line. According to FSR Magazine the casual dining brand Twin Peaks now places orders 12 weeks in advance when four to six weeks used to provide ample time. Focus on your relationships. In addition to communicating effectively with suppliers and paying bills on time, lean into existing and new collective agreements that enhance your purchasing power. Consider your branding. As operators focusing on chicken wings have learned in the past 18 months, it’s important to give yourself some leeway to broaden your offerings – perhaps to include new cuts of meat, or plant-based alternatives, or different presentations. FSR Magazine also suggests restaurants might consider building up a just-in-case inventory buffer – depending on the perishability and size of items that must be stored. Consumers are expecting things to be a bit different as a result of the pandemic – and at a time when supplies continue to be short, labor is difficult to find and customer traffic is unreliable, restaurants can use this expectation to their advantage. Many restaurants already are: Take Michelin-rated Eleven Madison Park, which announced it would be reopening as an entirely plant-based restaurant after its closure during the pandemic. As you have managed your restaurant throughout the course of the pandemic, have you come to conclusions about major aspects of your business that need to change in order to preserve the longevity of your restaurant? Would you be better able to stabilize your menu by making it entirely plant-based? Have you always relied on a dine-in customer base but believe this can no longer be your main source (or even a small source) of sales? Do you think you should serve a different demographic of customers than you did before? Are you too reliant on labor shifts – and burdened by the need to provide higher wages and benefits? Now is a good time for reinvention. Identify your primary pain points when it comes to your supplies, staffing, marketing and day-to-day operations management. By changing things that may have needed changing for a long time, you can give yourself a new story to tell customers, refresh your brand and generate renewed interest in it as we emerge from the pandemic. There’s plenty of pressure on restaurant prices lately, whether from the increased competition for labor, shortages of key ingredients, or other demands. How have you responded? According to recent research from Fitch Ratings, pent-up demand and fiscal stimulus have driven a recovery in restaurant sales in recent months – and that has enabled restaurants to pass increasing costs on to customers. Plenty of businesses have needed to (think of the restaurants who specialize in chicken wings), but others have hesitated due to the strains of the pandemic on customers in the past year. Where is the line for your customers when it comes to food prices – and what might you do to help smooth it out? Start by analyzing your menu and identifying your most costly and difficult-to-source items. Where might a less expensive or easier-to-source item be substituted? In cases where you need to keep a more expensive item on the menu, where can you incrementally boost the price of another item to help make up for the higher cost? Also consider the demographics of your customer base. According to recent consumer research from RMS cited in Nation’s Restaurant News, most respondents said upticks in food costs, the minimum wage and safety precautions justify price increases at restaurants – with Baby Boomers being most receptive to higher menu prices. Finally, you could consider adding an overall service charge to each order – with a brief, carefully worded message on the menu explaining why you need to do it – and how it ensures your restaurant can sustain itself and take care of employees. At a time when everything from labor shortages to supply chain kinks are posing challenges for operators, doing anything you can to manage and minimize waste is especially important. To be sure, there are plenty of tech-driven solutions designed to help prevent over-ordering supplies, measure ingredients, condense leftovers and reroute excess inventory – but a number of simpler solutions exist that restaurants can start using today. Most of them have to do with skewing small when it comes to portion size and accommodating size preferences. For instance, you can offer a choice of portion sizes and provide smaller container sizes of any refillable items. Make sure that whatever side dishes or even garnishes you’re serving are ones the guest has chosen, so you’re not perpetually throwing away the potato chips and coleslaw you have always served with your sandwiches. Pricing items à la carte can help. The National Restaurant Association also suggests offering guests the option of splitting an entrée or having part of it wrapped to go before it is served. To help minimize waste once your meals have left your establishment, you can provide reheating instructions on food packages to-go to ensure the meal retains its quality as much as possible when eaten as leftovers. |
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