A picture of a burger with dollar bills inside of it indicating food inflation

How to survive food inflation and maintain your profitability?

2022/06/16
By Nadine Hashem

Making profits at restaurants was way easier 10 years ago. Everything was less expensive from food supplies to kitchen supplies to wages and utilities.

 

Increasing your prices is inevitable but let’s face it, you cannot increase your prices without an elaborate plan, or you will be risking your customers retention. At the same time, you cannot risk your food quality.

 

It’s a quite intricate decision to make especially that you have no control over inflation while it has the biggest impact on your business making.

 

Despite all this, different measures can be considered to protect your margin and profitability.

 

What is food inflation?

 

Inflation is the general increase in prices of goods and services. Food inflation in specific means an increase in the wholesale price index of a necessary food item relative to the general index or the consumer price index (CPI, which is an index that measures the change in the price level of a market basket of consumer goods and services) or in a simpler way the increase of food cost.

 

There are certainly many reasons for rising food costs such as agricultural rising costs, fuel rising costs, wages increase or the increasing demand on the crop used to feed animals.

 

The effects of food inflation hit the national economy of any country specifically people who work in a food related industry or sector such as restaurants and hospitality.

 

Let’s take the increasing gas prices and how it impacts restaurants and food costs. Historical data shows that any increase in gas prices impacts consumer restaurant spending especially if the increase was higher than $4 per gallon.

 

A study made by Technomic, showed that an increase of 50 cent price increase results in $68 billion impact on consumer spending. While using cars might be affected but it remains a necessity to run errands and go to work or schools.

 

Hence, consumers cut back on other spending resources such as restaurants and leisure.

The below graph shows which sectors are subject to consumer cutbacks. Limited-service and full-service restaurants are the most affected areas.

 

 

A graph showing how customers cut back on certain expenses during food inflation

 

It’s true that consumers won’t totally stop visiting restaurants, but they will cut back on their expenses on restaurants meaning that restaurateurs must take action to protect their income and profitability.

 

 

While it’s not the easiest task to perform, you may rest assured that it’s manageable especially with restaurant management software along with its integrated features.

 

How to protect your profitability during food inflation?

 

 

Create ingredient substitutions

 

 

Your food costs are the biggest issue and challenge. It’s advisable to run an inventory check on your food costs and swap some of the costliest food you have. Swap them for seasonal and local food that are usually less expensive.

 

 

If the substitution is noticeable then make sure to announce it with appropriately on the menu or on specials. If not, then never mind.

 

Switching nuts for loess expensive ones, swapping vegetables or fruits in salads and desserts. You have many options to substitute items but make sure that you review your data from the inventory management system and menu engineering that show you the most expensive items and the most profitable and popular items.

 

 

Think strategically about your specials and limited time offers

 

 Your specials include all free items that the customer receives while ordering. If customers only order specials without adding regular meals, you should reconsider making up your margin with your discounted items.

 

You should pair combo meals that include low and high profit margins, consider lowering discounts or prepare smaller portions or substitute items in meals.

 

You might even get creative with your recipes and create a day or night for an exclusive dish with high profitability driving sales up.

 

 

Reduce food cost

 

 

Food waste is accountable for 35% of total food costs. Knowing this, you should dig into your inventory numbers to see the area where you’re losing money the most. It maybe the portioning of your plates or the waste in preparation or in expired or spoiled items.

 

If your customers are not finishing their dishes, you should consider decreasing your portions.

If you notice that you have lots of spoiled vegetables at the end of the day, you should reconsider your purchases.

 

Having an inventory management system is essential here to monitor your food and how it gets used.

 

 

Use menu engineering

 

 

Identify your different menu categories (stars, plowhorses, puzzles, dogs) to assort them according to their profitability and popularity. Thank God you don’t have to do the math here if you have menu engineering feature integrated in your POS software.

 

You may want to promote some of the high profitability items, remove low popularity and low profitability ones or decrease the cost of certain dishes with high popularity.  

 

It’s also the time for your talented chef to get creative with low-cost recipes that are high in demand or that you know they will be popular.

 

 

Understand price barriers

 

 

While you should increase your prices, you have to realize that customers are usually reluctant to cross certain prices barriers. Be aware of these barriers so you don’t lose customers.

Instead of rushing to increase these prices, rework your portions or substitute one of the ingredients.

 

 

Food inflation is an issue for restaurants and consumers but there are always ways to get through this inconvenience with the least losses.

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