In March 2023, menu price inflation surpassed grocery inflation, marking a notable shift in consumer spending trends. This development highlights the challenges faced by the food service industry in the continued wake of the COVID-19 pandemic and its impact on supply chains and labor costs.
According to the Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) increased by 0.6 percent in March, driven by a 0.7 percent increase in the food index. However, the inflation rate for food away from home (i.e., restaurant meals and other food services) increased by 0.9 percent, compared to a 0.5 percent increase for food at home (i.e., grocery items).
This marks a significant departure from the pre-pandemic trend, where menu price inflation typically lagged behind grocery price inflation. In fact, between 2010 and 2019, the inflation rate for food away from home was, on average, 1.1 percentage points lower than the inflation rate for food at home.
Operators Can Maintain Profitability
For restaurant owners, the recent increase in menu price inflation can present a significant challenge to their business. Here are some steps they can take to manage these market pressures and maintain profitability:
Analyze costs: To understand where adjustments to menu prices can be made, restaurant owners need to know where their costs are coming from. Conduct a thorough analysis of food and beverage costs, labor costs, and other operating expenses. Look for areas where costs can be reduced without compromising on the quality of offerings.
Revisit menu: Menu engineering is an essential aspect of managing costs in the restaurant industry. Take a close look at the menu and identify which items are most profitable and which ones are not. Consider removing or reworking low-margin items and promoting high-margin items to encourage sales.
Adjust portion sizes: Another way to manage costs is to adjust portion sizes. Consider reducing the portion sizes of the most expensive menu items or offering smaller portion sizes at a lower price point.
Implement technology solutions: Investing in technology solutions such as online ordering systems and mobile payment options can help reduce labor costs and increase efficiency. By streamlining operations, staff can be freed up to focus on other areas of the business.
Stay competitive: With the rise of menu price inflation, it’s important to stay competitive. Research competitors and ensure that prices are in line with industry standards. Consider offering promotions and discounts to attract customers and incentivize repeat business.
Communicate with customers: Finally, it’s important to communicate with customers about any changes to menu prices. Be transparent about the reasons behind the price increases and highlight any efforts being made to maintain the quality of offerings. By keeping customers informed, trust and loyalty can be built.
The recent increase in menu price inflation presents a challenge to restaurant owners. However, by analyzing your costs, revisiting your menu, adjusting portion sizes, implementing technology solutions, staying competitive, and communicating with your customers, you can manage these market pressures and maintain profitability.