When costs go up, restaurants have to look for creative ways to reduce their spend and maintain healthy profit margins.
Unfortunately, that’s exactly what many restaurants around the world need to do right now. Rising wages, skyrocketing food prices and inflation across many expenses have made it more expensive for restaurant owners to run a profitable business.
In the US alone, inflation rose 7 percent in 2021. That’s the fastest acceleration since 1982, with shelter, used vehicles, food costs and energy prices all key drivers of rising costs. Inflation is expected to increase a further 3 percent over the course of 2022, according to Bloomberg.
Meanwhile, in the UK, inflation jumped 5.4 percent in 2021 to a 30-year high, which according to The Guardian has not peaked yet and is likely to exceed around 6 to 7 percent in April 2022.
With that in mind, in this blog, we’re going to take a quick look at what is happening with inflation in 2022, how it impacts restaurants and what restaurant owners can do to fight inflation and ensure they remain profitable over the course of the year.
The current state of play for restaurants and inflation
Restaurant menu prices at limited-service concepts are up about 8 percent over 2020, while full-service restaurants are charging about 6 percent more, according to an article from Forbes.
While many restaurant owners only raise their menu prices as a last resort, these price increases come as operators navigate a range of cost pressures, from rising gas prices, higher commodity prices and increased wages (due, in part, to the Great Resignation).
These price increases represent an inflationary environment that hasn't been seen in more than 40 years. Here’s a breakdown of the rising costs for restaurant owners:
- Food prices are increasing at the fastest rate in 40 years, according to the US Department of Agriculture.
- The world’s labour shortage is significantly driving up wages, as companies battle it out to acquire and retain the top talent in their industry.
- Energy prices have inflated dramatically, as natural gas prices soar around the world in part due to Russia’s invasion of Ukraine.
To counteract this inflation, restaurants are increasing their prices. But this is a last resort for many operators who are conscious that they still need to remain competitive price-wise with their local competition.
That’s why, in the next section of this blog, we take a look at a few other methods that restaurant owners can adopt to manage rising inflation and ensure they are able to maintain healthy profit margins.
How restauranteurs can fight inflation
- Gain visibility and control of your restaurant inventory
To manage costs effectively, and to gain insights into your business that result in better profit margins, it’s crucial that restaurant owners have an effective beverage and food inventory management process in place.
Through the combination of consistent inventory counts and an inventory management system that automates important calculations, your business can gain valuable insights that help you reduce food waste, improve your ordering processes, increase profit margins and better serve your customers based on what sells.
- Reduce food waste
It’s believed that food costs account for around 28 to 35 percent of a restaurants’ total cost. That means your inventory is a direct investment into the profitability of your business. The better you utilize that inventory, the more profitable your business will be.
That’s why food waste is no good. It’s essentially just throwing away a part of your profit margins. Through inventory management, your business can gain the data to see exactly what products are experiencing waste. You can use that data to make process changes to your business that lead to less loss.
- Make creative ingredient substitutions
With inflation having a serious impact on food costs, it’s only natural that some ingredients are going to cut into your bottom line. You could have a great selling dish, but if it has an expensive ingredient that could seriously impact the profitability of your business.
To counteract that, look into ways in which you can creatively swap that ingredient in the dish for something less expensive. If you can reduce costs on ingredients but still sell the dish for the same price, then you’re going to have higher profit margins.
- Review the performance of your menu
By integrating both your POS system and your inventory management software, your restaurant will be able to gain unique insights into the cost of dishes, how much you are bringing in through sales and, ultimately, the profit of each dish.
This will give you all the information you need to analyze the performance of your menu. Your dishes should be divided into four categories.
- Stars: High profit, high popularity dishes.
- Puzzles: High profit, low popularity dishes.
- Plow horses: Low profit, high popularity dishes.
- Dogs: Low profit, low popularity fishes.
Check out our blog, Restaurant Inventory: How menu Engineering Can Boost Your Profits, to learn how these four categories can help you build a more profitable menu.
Alternatively, contact Sculpture Hospitality today. Our team of local restaurant inventory management specialists would love to help your business come up with some creative ways to drive profitable growth, despite rising inflation.