F&B InsightsRestaurant Industry Insights

Restaurants Use Competition Pricing to Fight Inflation

Toast, a leading restaurant POS and management system software, recently came out with its industry outlook for 2023 on pricing to fight inflation. Just over 950 restaurant operators, mostly from small and medium-sized establishments menu pricing, took part in a survey that resulted in some interesting takeaways.

Let’s look at what’s ahead for our industry in the coming months. 

Restaurants Fight Inflation

About 34% of operators felt that growing inflation was extremely or moderately challenging. The effect can be seen in the difference between restaurant revenue, which is up 12% year-over-year, and profits which are only up by 8%. 

About 39% of operators surveyed are tracking costs to stay abreast of changing supplier prices and holding them accountable for fluctuations from pre-negotiated prices. Toast found this particularly true for full-service establishments. It’s interesting to note that about 38% have adjusted food suppliers. 

Restaurants are also going to have to make a call about pricing as inflation declines. Do they respond with lower prices or see if the current pricing strategy is sustainable? About 36% of those surveyed have increased prices, 31% reduced menu items, 34% reduced inventory, and 30% substituted lower-cost ingredients to retain margins impacted by inflation.  

The Supply Side

Backlashes from the pandemic and the ongoing war in Ukraine have continued to disrupt the supply chain and affect costs. As a result, operators are still having to determine how much of the added costs they are passing on to their guests and at what point these rising prices affect demand. 

The Current Look at Inflation

As of January 2023, inflation has been on the decline for the last six months, leaving people feeling some relief from the relentlessly rising costs of living. Inflation has lowered to about 6.5% after reaching its peak in the summer at 9%. 

The New York Times reports that economists are at a crossroads, with some expecting inflation to decelerate quickly and others expecting it to demonstrate a more stubborn tendency. A Bloomberg survey revealed that some economists believe consumer price increases will remain at a minimum of 5%, while others see it dropping to 1.5% by the end of 2023. Some good news is that shipping costs are falling back to pre-pandemic levels, which should reflect in prices.

F&B Insights—Utilizing the Competition Pricing Method

As always, restaurants are facing challenges in their menu pricing strategy. At what point does raising prices to achieve desired margins backfire? One of the best strategies that often goes unused is surveying competitors’ pricing. Doing some research and finding out what restaurants are charging for similar dishes enables you to stay within the lines of relative pricing without risking losing customers based on price.

The competition pricing method utilizes restaurant competition in the general market as a baseline. Competition-driven methods include pricing an item the same as your competitor’s. If your brand is unique and appeals to customers through the experience as well as the food, this method may be the most effective. 

If you’re a casual restaurant that caters to customers looking for cost-effective alternatives, you may want to consider pricing lower than your competitors. In some cases, high-end, upscale restaurants price higher to appeal to the demographic of diners looking for the highest quality or the seemingly highest quality that is impressed by the highest prices.

At F&B Insights, we make this pricing strategy easy by pulling together the world’s largest menu database. This information enables you to make informed decisions about pricing your menu and sends alerts when local competitors change their menus.

Now, you’re in the know without having to play detective—a once time-consuming activity that operators found challenging to integrate into their busy schedules. Are you ready to join brands like Bar Louie, City Works, Dominick’s Steakhouse, and the Baldwin Restaurant Group in making informed pricing decisions? To learn more about F&B Insights or to schedule a complimentary consultation, contact EMERGING today or fill out our online form. We look forward to hearing from you.

FAQs

What is inflation?

Inflation translates to a loss of purchasing power due to increased prices in goods and services like food, clothes, and transportation. It’s affected by rising consumer demand as well as supply chain issues and changing oil production. 

What is the menu pricing strategy?

Most menu pricing strategies are based on overall restaurant costs, recipe costing, calculating final plate costs, and maximizing margins. It involves determining your targeted food cost percentage and checking out competitors to ensure you’re not overpricing and reducing demand or underpricing and leaving money on the table.

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