Michael Scelfo, award-winning chef, restauranteur, and owner of Alden & Harlow, Longfellow Bar, and Waypoint in Cambridge, MA, shared his thoughts on the state of the restaurant industry and how it compares with the 2008 economic downturn with Good Morning America.
“What’s so different this time around is it’s this sustained, evolving-downward spiral since March of 2020 when things hit the fan with COVID and the shutdown. What we’re left with is this economic rubble of the aftermath.”
The result, as we all know, is staffing shortages, broken supply chains, and rising food, material, and fuel costs. While Scelfo considers passing along the rising cost of food to his guests a last resort, many operators have found increasing menu prices the only way to retain any profitability. According to the Bureau of Labor Statistics, food away from home, or restaurant dining, increased 8.5% over the last year ending in September 2022. Full-service meals rose by about 8.8%.
Jack Dickson of Dickson’s Farmstand Meats noted that his prices held steady due to long-term relations, but that’s changed as farmers’ costs escalate, such as fertilizer and fuel. He recently opened a beer and wine bar to offset other costs and take advantage of higher profit margins. Some restaurants have turned to temporary price increases by adding an inflation fee or surcharges to the check.
The New York Times illustrated the impact of rising food costs. Bruce Moffett, owner of Good Food on Montford, an upscale restaurant in Charlotte, NC, told the Times that soaring food costs left him with no choice but to raise prices. Today, a small plate is $16, compared to $12 about three years ago.
A glass of wine has also increased by about $4, up to $20. Moffett noted that wines he has served for years are suddenly unavailable, and water shortages, climate change, and staffing challenges affect domestic suppliers. The changing food costs that prompted increases include beef strip loin, which is up 56% from 2019 to 2022. In addition, pork butt is up 50%, floor increased by 61%, and canola oil rose a startling 159% during this same time frame.
The Fine Line: Increasing Prices without Affecting Demand
The difficult decision almost every operator makes is how to increase prices to retain profits without losing customers. Like Chef Andrew Alexander from Good Food on Montford, many had to cut certain menu items or swap out high-cost items for less expensive ingredients. For example, one item to make the small plate menu was quail, a less expensive protein than others on the market.
At Emerging Concepts, we witnessed most of our restaurant partners and clients facing these challenges. Our solution to help them through this complex environment was F&B Insights. Using our AI-driven menu pricing, operators can leverage nationwide market intelligence to see how restaurants in their area are pricing similar items to those found on their menus. In this way, they can raise prices as needed, knowing their neighborhood’s general price range without affecting demand.
Additional Strategies to Offset Rising Costs
As with Good Food on Montford, restauranteurs are paring down their menus, reflecting available items that haven’t skyrocketed since the pandemic. Chefs are reengineering recipes and ingredients, reducing the number of weekly deliveries, and negotiating with suppliers on product quantities. Others are leveraging supply chain consultants that utilize cooperative purchasing to lower prices. Buyers Edge Platform, for instance, leverages over $12 billion in buying power and purchasing data, negotiating contracts that their members would never be able to realize on their own.
The challenges restaurants currently face has led to improvements in technology. These include automated ordering solutions and systems that help operators determine food costs and the appropriate menu pricing. In addition, technology like Tipzyy, an innovative web app, helps educate employees about the products, upselling, and cross-selling techniques and incentivizes them for a job well done.
According to the National Restaurant Association, the average restaurant with annual sales of $900,000 has seen its pretax profit margin drop from 5% to 1%. Navigating rising food costs and systemically tracking the changing landscape isn’t easy. At EMERGING, we coordinate the execution of your business strategy in supply changing, data science, finance, labor, and real estate, helping you hit your long and short-term goals. To learn more about implementing F&B Insights and tracking competitors changing menu pricing, contact EMERGING today.
How much should I increase my menu prices?
Historically, restaurants may increase their menu prices once or twice a year. Many went several years before changing their price structure. Today, however, we’re facing unprecedented challenges that force restaurants to increase prices or close their doors. F&B Insights can give you the incite you need to stay competitive in your niche.
How can I keep my customers while updating menu prices?
One survey by Square found that almost half of all restaurants plan to trim down or completely change their menu. To remain open, restaurants are shrinking portions and raising prices. One of the best strategies to ensure customer satisfaction despite changing menus is to survey the competition and grasp local market trends.