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.
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.
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.
Other than labor, the top challenges for restaurant operators right now are escalating food costs and short supplies, according to recent commentary from Larry Reinstein, industry consultant and president of LJR Hospitality Ventures. (And of course, labor shortages can impact both costs and supplies.) When you look at your operation, where might there be room to flex when the foods you are known to offer are priced out of your budget or are simply unavailable? First, consider what dishes and ingredients on your menu are more variable and adaptable. You may be able to be more flexible with ingredients than you think. Case in point: When Wingstop, which literally has chicken wings in its name, had to keep business going amid a wing shortage in recent months, it offered the alternative of chicken thighs, the National Restaurant Association reports. For every dish you serve, consider how you might reinvent it without a perceived loss of value for the guest – or if you should temporarily replace it until cost and supply challenges shake out. Of course, you may have some room to raise your prices – media reports are spreading the word to consumers that they have not been paying sustainable prices for restaurant food in recent years. But if you must raise prices, look for other ways to elevate the experience you’re providing guests – particularly if you’re already short-staffed and out of popular menu items. This is where the human side of the restaurant business has an opportunity to demonstrate its worth.