The latest numbers show that inflation is trending downwards, dropping to 6% year-over-year, according to the Bureau of Labor Statistics March 14, 2023, Economic News Release. The data also revealed that restaurant prices continued to increase, with food away from home registering an 8.4% increase.
While grocery prices are still in the lead, with prices up 10.2%, this represents the lowest gap in price inflation between the two segments in one year. This leaves one wondering, are current menu prices here to stay and leveling off, or are some restaurants making the bold and unusual mood of lowering prices?
The Answer According to Technomic
A Technomic survey of 350 restaurant operators revealed that, over the next six months, more than 99% of those surveyed expected prices to stay the same or increase. To be more specific, 82% expected to raise menu prices, 17% thought they would stay the same, and 1% suggested there might be a decrease.
Others in the industry wonder about this approach. After all, if your customers see prices dropping, and that reduction isn’t witnessed in restaurant prices that have been on the rise, will they feel slightly betrayed? A few of the grocery items that experienced a decrease in prices at the end of 2022 include chicken, ground beef, ham, bananas, lemons, and navel oranges.
Restaurants Opting for Value
According to Restaurant Business, Fry the Coup, a fast-casual chicken concept with seven locations in the Chicago area, reported that they are lowering prices after increasing their menu prices twice in the last year. After raising rates, they noted a decline in traffic. To reduce prices without losing money, they had to eliminate unnecessary expenses and even turn their chicken tender plate, normally served with fries, into an a la carte entrée due to the crushing price of chicken.
Fry the Coop’s owner, Joe Fontana, reported, “Great companies really listen intently to their customers and use their feedback to get better.” He added, rather profoundly, “Give more than you take, and life will be great.”
One of the best tools for restaurant operators to tune into customer sentiment is via reviews and social media platforms. What are your customers saying about your prices and the perceived value?
The Big Question: To Raise or Not to Raise Menu Prices?
Many operators are undoubtedly tired of this question and the fine line between maintaining a profit and increasing prices to the point of affecting demand. It goes right along with wondering if Chicken Little may have been right or did she really misread the signs? Was the little acorn that she deemed the sky just the first in a series of catastrophes?
The last several years have certainly felt, at times, like the sky was falling. Perhaps the worst is in our rearview mirror, and it’s time to pass on our good fortune to our clients. Perhaps our margins are extremely thin, and retaining the profits we have is sound business. Your customers will undoubtedly let you know.
Another Approach to Menu Pricing
Fortunately, there is another way besides extreme calculations that may require advanced mathematic skills or waiting for the wrath of clients via social media. It’s called F&B Insights Menu Pricing.
Imagine knowing what your competitors’ prices are every minute of every day. Imagine receiving a notification when their menus change. Consider comparing restaurant menus on a national scale to see how the current prices affect the operator’s menus and pricing strategies. Imagine.
F&B Insights offers the largest menu database in the world, giving you the information you need to price your menu without leaving money on the table or affecting demand.
According to Chris Bisaillon, CEO of Bottleneck Management, whose restaurants include City Works, Old Town Pour House, South Branch, and Sweetwater, “Menu Pricing has been a great resource to identify where we can consider raising prices. Allowing us to see thousands of menus immediately, we can make very informed pricing decisions. The previous menu pricing process was painfully slow and very manual.”
Is inflation hurting restaurants?
A survey by Rewards Network revealed that over 90% of restaurants have raised their prices since the pandemic. At the same time, restaurants expect about 20% of their customers to reduce their spending due to inflation. Nothing like being between a rock and a hard place. An Alignable Research Center survey reported that 72% of restaurant owners expected their establishments to close unless inflation eased. That was back in May 2022.
What is the most common method for pricing menu items?
One of the most common methods for pricing menus is determining each item’s ideal food cost and price accordingly. Most restaurants’ food costs run between 28-35%, though this varies significantly depending on the type of venue.