Operations
3 ways restaurateurs can combat inflation
Erik Hermann of CapitalSpring, a private equity firm that has invested over $2.7 billion in 70 restaurant concepts, discusses how restaurant operators can please consumers while still driving profit.
May 15, 2024 by Blas Escarcega — VP of Franchise Development, Pollo Campero
It's no secret that inflation is causing food prices to rise — average wholesale food prices jumped 1.6% in February 2024 (the strongest monthly gain since November 2022), according to preliminary data from the Bureau of Labor Statistics. To compensate, restaurants are increasingly raising their menu prices. A recent study found that most fast-food restaurants have raised prices by 60% on average during the past decade, and much of this change has happened in the last five years. Inflation is up 22% since 2019. Understandably, consumers aren't thrilled about the additional strain on their wallets.
Operators wanting to maintain their profit margins through this challenging economy must combat the ongoing impacts of inflation while retaining high levels of customer satisfaction and loyalty. Here's how to do it,
1. Enhance value beyond pricing
Guests are always looking for a good deal in terms of price and quality, but this is especially true when dining out becomes a more considered choice due to rising costs. The aim of restaurateurs should be to adjust pricing strategies to draw in new patrons or encourage more frequent visits from our regulars. And if reducing prices on certain items isn't feasible, then adding value in other ways becomes critical.
One way to do this is by prioritizing experience — making every visit memorable. It's all about providing exceptional service and creating an experience that truly stands out. Introducing bundle deals or serving larger portions can offer guests more value while keeping prices steady, for example. Developing an interesting, limited-time offer or menu item that guests can't get elsewhere is a time-tested way to generate traffic.
Remember, you should avoid discounting visits for guests who would have dined there regardless. Ideally, discounts should attract new faces or entice regulars to visit more often.
2. Communicate better
Guests understand that prices are bound to go up in today's economy — 64% of consumers said they expect food prices to rise in the next year, according to the February Consumer Food Insights Report. But the speed at which they're seeing these increases is causing understandable fatigue. That is why communication is key. Drawing attention to price increases can backfire, so it's wise to implement changes quietly and in a way that's mindful of your guests' perceptions.
At the end of the day, guests want a minimal impact on their wallets. Operators should only adjust prices where it's necessary to protect their bottom line. Earning our patrons' trust stems from our commitment to managing costs wisely. When we make any necessary price adjustments with this careful approach, our guests are more understanding. They see the fairness in our actions, recognizing them as a response to the wider economic situation we're all navigating together.
To mitigate the need for significant price increases, it's wise to explore affordable substitutes that could lower costs without compromising quality. Introducing more cost-effective ingredients or highlighting dishes with better margin profiles can help manage costs while keeping the menu appealing. Look for opportunities to reduce prices across the whole menu. If you need to increase prices by 2% to maintain margins, for example, ask yourself where in the menu you can make up that increase. Remember, crossing a dollar threshold can make patrons perceive even a small price hike as a significant change.
3. Leverage technology for efficiency
There's a whole toolbox of strategies to tackle the immediate effects of inflation, but the real game-changer comes from setting sights on the long haul.
Innovating the way you manage and reduce operational costs can help keep your offerings attractively priced. Looking ahead, embracing technology will be the key to enhancing operational efficiency. With every leap in technological innovation, we're given new ways to streamline operations and trim down expenses. Finding efficiencies through advancements like voice artificial intelligence in drive-thrus or self-service ordering kiosks, for example, may significantly ease the pressure on our costs. This not only benefits us but our customers as well as it makes their dining experience better and more affordable.
Looking to the future
Overall, inflation can be a tough nut to crack for those of us running restaurants, but it can be a chance to hone in on what makes an establishment special, optimize pricing to keep guests happy and leverage the latest and greatest tools to stay ahead of the curve. It's all about being nimble and tough, ready to adapt and come out stronger, no matter what the industry throws at us.
About Blas Escarcega
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