Capital

How the World Crisis and Continued Inflation Is Affecting Restaurants

Every day, there’s another headline about rising inflation. In its wake, it’s left rising restaurant menu prices and some disgruntled customers. Now, our world faces yet another crisis that may also affect prices and the supply chain.

Let’s look at the actual effect inflation has had and will have on restaurants and what operators and guests are doing about it.

Rising Prices and War

According to Restaurant Business, the end of 2021 saw chicken prices up over 36%, cooking oils up almost 40%, and beef hitting a whopping 41% increase year-over-year. With the current crisis and upheavals our world faces, those numbers could, unbelievable, rise even further.

In addition to the severe humanitarian crisis in Ukraine, wheat, corn, oil, and other commodities may show price increases as a result of the war, sending food prices even higher. Though we, as a country, import relatively little from Russia, what happens in those two countries can have a wide-ranging effect on Europe and the rest of the world.

As we witnessed in 2020, no country is a bubble, and turmoil in one creates a ripple felt by all. The continuing disruption in the global supply chain is but one example.

While rising costs always affect the profitability of any business, restaurants have been hit from multiple avenues and at unprecedented rates. In addition to increasing food costs, wages are up at least 14% from 2021, and 2022 saw an increase in the minimum wage in multiple cities and states.

California now has the highest statewide minimum wage in the country, coming in at $15 an hour for employers with 26 or more workers. California is also one of seven states that do not allow tip credit.

Operators Response

As with any business, when costs rise, so does the price for the service or product. As a result, restaurants whose menus do not reflect the rising food, labor, and other expenses will find dwindling profit margins in an already tight market.

The price for a full-service meal is up, on average, about 6% compared to 2020, with limited-service restaurants experiencing the most significant jump at 7.9%.

The best move is to keep a keen eye on the numbers and manage your cash flow. For independent restaurant owners with more than they can handle on their plate, one more to-do may seem like an impossible task. These numbers, however, are a restaurant’s lifeblood.

Make sure to maintain a markup comparable to increasing costs and avoid being caught by surprise. Though busy with guests who experienced pent-up demand, restauranteurs face extreme challenges right now in the form of labor upheavals, soaring costs, and supply chain challenges.

Vigilance Required

The current fix is increasing prices and updating menus based on product availability and the market. Fortunately, technology has delivered systems that can do the heavy work for operators. For example, today’s restaurant management software systems cover inventory, menu costing, and menu analysis.

They reduce waste while increasing productivity and come up with the numbers you need on a regular basis, like your revenue per seat, table turnover rate, food cost percentage, menu item profitability, and prime cost.

Using these numbers to make incremental price increases can help dwindling profit margins without placing too much of a burden on your guests. Use the above numbers to take a good look at your menu items and determine where you may be able to substitute ingredients while maintaining your same high-quality standards.

The New York Times recently reported on the rising food prices at some of the nation’s favorite fast-casual restaurants. A chicken burrito at a Chipotle in Costa Mesa, CA., went from $7.25 to $7.95, and the 50 bone-in wings you get from Wingstop rose from $41.99 to $47.49, all in about a year.

The Effect on Guests and Their Response

7shifts analyzed the changes taking place in restaurants due to the changing economy. According to their data, restaurant menu prices have risen considerably since 2019, showing a 14% increase. Additionally, while the prices increased, the number of items ordered decreased, meaning guests ordered fewer items but paid more.

They also analyzed tips to see if guests left less in response to paying more. The excellent news for servers and others in the industry was that tips increased by about 18% compared to what guests left in 2019.

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