Data IntelligenceMenu Engineering

How Restaurants Get Hit By Sky-High Inflation

Inflation is at an all-time high in the United States and the world, breaking a 40-year record at 8.6% in the US. The current economic situation indicates that this inflation rate isn’t going down soon. 

Price increases significantly impact people as purchasing power declines, making it difficult for restaurants to attain their sales goals. Like all other businesses, restaurant owners are forced to sell at higher rates and face a shortage of materials. 

How Is Inflation Affecting Restaurants Owners?

Although inflation is an integral part of any economy, it can be high or low, but the current level is a significant economic problem for businesses, especially the restaurant industry. 

Fox News reports that 66% of restaurant owners are struggling because of sky-high fuel prices, but even in dire times, restaurants are working to keep the prices as low as possible.

The news outlet interviewed Elisabetta’s general manager Drew Shane on how the current situation has led to new challenges for the restaurant industry? Increasing costs and a shrinking labor pool are only the beginning. However, he added, despite the challenges, they are not letting down the quality of their food despite the inflation-led scarcity of resources and raw ingredients. 

Elisabetta has changed their menu and wine list several times because of supplier-related issues.

Inflation Impact On Small Restaurants 

Small restaurants are more affected by the rising costs. A report from Goldman Sachs revealed that 91% of small businesses are facing challenges. The report also highlighted that 60% of small businesses had increased their product prices to increase wage rates to retain their employees. 

A CNBC report highlights the struggle small restaurant owners face. A local restaurant in Los Angeles reports that they struggle to find goods and commodities at reasonable rates as every commodity’s prices have increased.

Supply Chain Issue Due To Inflation 

An interview on Yahoo Finance by Wolfgang Puck stated that the supply chain had become a significant issue due to sky-high inflation. He further said: “Truck drivers, they’re hard to find; they couldn’t deliver the food. The people who had warehouses had to pay them overtime to deliver at midnight because there are so few people working.”

Employee Retention And Increase In Wage Rates Due To Inflation 

Moreover, inflation has created difficulties in retaining employees. Rising costs mean lower purchasing power and drastic changes in standards of living. Restaurants of every size are facing employee shortages and wage rate issues.  

In many industries, wage rates increased by 5%. While this may not be a significant issue for prominent restaurants and food franchises, it is hard for medium and small restaurant businesses to maintain their price and profits while increasing wages. In both scenarios, they are at risk of labor shortage or loss of customers.

How Can Restaurants Battle Inflation?

Restaurants can take specific measures to keep themselves operational and maintain profit margins. Here’s how:

  • Use POS Data For Better Optimization

POS data can be a tremendous help for restaurant owners during inflation. It allows you to understand consumer behavior and buying trends. The historical trends should enable restaurants to monitor the change in buying behaviors and customer preference when they increase the price of different dishes due to inflation. 

The existing and current data can help restaurants optimize their operations, including staff utilization and performance. POS data can help restaurants manage their staff for the most efficient output.

Trained waiters are a crucial part of a fine dining experience; waiters can help customers make buying choices; that is why restaurants should leverage POS data to efficiently manage their shifts to give their customers a premium experience and get maximum benefits in times of high inflation.  

  • Change The Menu

Restaurants can customize their menu according to inflation. They can decide which category to offer or which foods to deduct from the menu that are not generating profits. Doing some research and initial costing, you can select the right menu to create profits and have adequate sales.  

  • Find Low-Cost Ingredients 

Restaurant dishes use a variety of ingredients. Some are locally produced, while others are imported. Inflation increases their prices but with a different rate for a different product. The best way is to find alternatives for ingredients that are consuming your profits and suppliers willing to provide materials and goods at lower rates than your current vendor.

  • Cut All Extra Expenses 

Find out extra expenses that can be reduced and cut down. Save on bills and additional expenditures for your restaurants to keep up with inflation and retain your employees.

As we said, inflation is an integral part of the economy, current inflation levels are high, and with any luck, policymakers and government bodies will take necessary measures to prevent the further rise of inflation. 

However, this doesn’t mean that this problem will not arise in the future. Restaurants have to evolve with the rising inflation and find a way to fight back against the increasing prices. Fortunately, with the latest data analytics tools, software and consultants, restaurant owners have a fighting chance and create effective policies and strategies for both the long and short term.

FAQ

How long will inflation last in an economy? 

Well, inflation usually doesn’t last very long as it starts to impact the economy negatively, and governments take necessary measures to normalize the inflation rate. Luckily researchers predict that the current inflation will normalize between 2023 and 2025.

Are restaurants still able to operate in high inflation times?

Inflation is problematic and challenging for businesses, especially small and medium-scale restaurants. However, even with high inflation, restaurants can take specific steps like reducing operation costs and efficiently utilizing resources.

What is POS? Can restaurants benefit from it?

POS (Point of Sale) software collects valuable data and stores it under various categories like sales, product, staff, customer, and others. The data can help restaurant owners create customized strategies for a better experience for customers and the prosperity of the business.

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