How much of a price increase is too much for guests? Amid record-setting inflation, it’s a question that many restaurant operators are struggling to answer. A recent study by Revenue Management Solutions may provide some insight into the tipping point. While the research focused on quick-service restaurants, it provides a starting point for assessing price across the menu in other restaurant categories – and an incentive to maximize profitability and value. QSR Magazine reported that RMS analyzed in-store price increases during the second quarter of this year over the second quarter of last year at 25,000 quick-service restaurant locations across the country. It found that net sales hit their highest point at around 13 percent. Beyond that, price increases negatively impacted traffic so much so that net sales began to decline. Further, some locations found that declines in traffic began at around the 6 percent increase mark. While this study represents one data point to consider, it reinforces the need to ensure your individually priced items maximize profitability when it comes to ingredients and labor. Where you have menu items that can easily be bundled to boost check totals, emphasize value – consumers continue to seek it out as a means of justifying food spending.
According to Datassential, 60 percent of restaurant menus have gotten smaller in recent years. As menus have slimmed down and inventories have had to stretch farther, the language you use to present your menu items becomes that much more important. Your menu is also one of the first things a potential guest sees from your restaurant if they order online, so it needs to create the right first impression about your brand. That’s something that may need some attention at your restaurant as you update the language you use on your menus to accommodate a newly streamlined selection or a shifting supply of ingredients. As Guillermo Ramirez, creative director of the Miami marketing agency Gluttonomy Inc. told Eater recently, “The menu is just like a business card.” It needs to encapsulate your business and accurately reflect its brand and values, in addition to what you’re serving, while leaving some room for surprise. At the same time, you want to hold guests’ attention and make every word count. In your menu descriptions, consider including the names of key ingredients, along with brief, vivid descriptive words that engage the senses, as well as a word or two on how the dish is prepared. Highlight any premium ingredients you’re using, along with local suppliers that guests may know. Eliminate jargon to ensure you communicate clearly and avoid creating the wrong kind of surprise about what they are ordering.
Record-setting inflation and ongoing food supply problems have transformed menus – but chefs are finding that the transformation can be for the better. As Fortune reported recently, food inflation’s effect on the price of many popular kinds of seafood has resulted in chefs serving up lesser-known, exotic alternatives. One example: the snakehead fish available on Maryland’s Eastern Shore. It’s a frightening-looking cross between a catfish and an eel that happens to be a delicious crowd pleaser – and even better, only $6 for a whole fish. Other operators have needed to remove much-loved signature items from their menu because the costs just don’t add up. The owners of Chicago’s Parachute removed their signature bing bread from their menu, not only because of the 63-cent profit it generated for the restaurant but also because lower-cost substitute ingredients weren’t cutting it and there was a significant amount of labor required to produce it. They wanted to move toward a more equitable system that compensates staff better, and the bread wasn’t helping them get there. Looking across your menu, are there items that drag down your profits, overall food quality or staff compensation? In a recent interview, Chef Kathleen Hoffman, senior culinary manager for U.S. Foods, said in the current climate, she is focusing on helping chefs create scaled-down menus that address all of those challenges: “We help them winnow their menu down so they do five things really well instead of 10 things just okay,” she said. “The days of the 20-page menu are over.” For chefs, this often means making the call to remove menu items that guests love and have come to expect. Just trust that doing so can actually help you protect your business for the longer term.
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.