With inflation on the rise, discretionary spending is often the first to go. At the same time, after several years of pandemic restrictions and working from home, people are eager to get back into socializing, celebrating and spending time with others.
As a restaurant owner, how can you take advantage of these competing impulses? Your costs are rising, but you don’t want to turn prospective customers off with restaurant price inflation, smaller portions and reduced service levels.
According to Restaurants Canada, even back in February 2022, the average restaurant operator was already anticipating raising their prices by over 5% to cope with supply chain challenges, labor costs and other expenses.
In the US, full-service restaurants have upped their menu prices by 9% over the past year, while quick-serve outlets notched an increase of 7.2%. This is in direct response to the rise in food costs—over 11% since Sep 2021.
So if you’re worried about how this will affect your business, you’re not alone.
But there is some good news. “Many customers have been remarkably tolerant of menu price inflation, in part, due to pent-up demand for dining out” says David Hopkins, president of The Fifteen Group.
He and his team provide consulting services to new and existing restaurants, helping them simplify operations and achieve sustainable profitability while improving the guest experience. Rather than settling for the razor-thin margins typical at most eateries, Hopkins has a different take: aim to run your business to achieve at least 15% profitability.
Sounds impossible? Here are a few ways to get started and manage costs in today’s inflationary environment without alienating your clients.
Start with the Basics
What does success look like to you? What are the metrics that will signal that your business is in a healthy place? Hopkins suggests planning out your profit model to get a better understanding of what your goals are. Once you have a good grasp on what you’re hoping to accomplish, your next steps should become clear.
For example, your flagship may have been open 7 days a week for lunch and dinner before the pandemic. Today, your traffic patterns have likely made some significant shifts. So if you take a look at your numbers, you may find it makes more sense to open certain days of the week at specific times.
Making this change can help optimize your labor costs and reduce downtimes—a cost-saving move that won’t cost your customers a dime.
Engineer Your Restaurant’s Menu
Most restaurants will need to increase prices, but it shouldn’t be a simple blanket increase. This move can turn off long-time customers and trigger dissatisfaction if they don’t feel they’re getting better value for the money spent. Here’s how to make subtle, thoughtful changes that will impact your business for the better.
Cost Out Your Menu
Knowing how much every item on your menu costs is vital before beginning any pricing activity. This exercise will help you identify which of your dishes are over and underpriced.
Stack the prices against the profitability of each item, and you’ll get an idea of what to do next.
Do you need to raise prices for some items? Drop prices on others?
Simplify or remove some choices altogether? Costing out your menu, Hopkins says, can add 4-5% to your bottom line. Once you have this information, you can start tweaking your prices.
Streamline Your Options
As mentioned earlier, you can start cutting your costs simply by removing items from your menu or ingredients from the prep process.
Underperforming choices are quick and easy to eliminate. Consider substituting complex raw materials with simpler ones that are easier to source or require less preparation.
And look for ways to reduce food waste—this could mean slightly smaller serving sizes. But it can also look like using fewer ingredients or ones that can be repurposed in more dishes.
Having stronger-performing items on the menu that are easier to prepare also has an added benefit. It’ll be much quicker to train and onboard staff in the kitchen, a big plus with today’s labor shortages.
Revise Prices Strategically
Prices don’t have to go up to increase your profitability. You can cut prices—even on your most expensive items, and still come out ahead. Hopkins poses the example of an expensive but popular steak special.
By dropping the price to make it more enticing to guests on the fence, it can steal sales from a less profitable dish.
Similarly, removing items from your menu with lower margins can push clients to choose your higher-margin options.
Of course, some price increases are inevitable and shouldn’t be avoided. After all, the key to a successful restaurant is sustainability!
Redesign Your Menu
Once you’re confident in your new offerings and prices, you’ll need to redesign and print your menus. Don’t just make edits—this is an excellent opportunity to rethink how your menu is laid out and optimize the design to entice hungry patrons.
Strategic placement and callouts can help drive customer behavior. For instance, are there add-ons that can increase the profitability of a dish?
Highlight these optional choices with bolding, color or mouth watering images. High-margin meals that could use a little more customer love? Call them your chef specials or kitchen signatures to attract more interest!
Invest in your Online Ordering System
Don’t neglect your takeout business! Most restaurants were forced to rely on carryout and delivery to make ends meet during the pandemic.
And while restrictions might be a thing of the past, it’s still popular and convenient for families, the lunch crowd, or anyone in a hurry looking for a meal to go.
So whether you rely on a third-party app or use a branded platform, make sure it’s easy to use and frictionless for your clients—convenience is critical for a great takeout experience.
Provide a great Customer Experience
Patrons may be both accepting and understanding of post-pandemic restaurant price inflation. But they can also be fickle, particularly if inflationary pressures continue. If you focus on providing a quality experience, they’ll find reasons to keep coming back, even if prices go up.
But if your eye is only on the bottom line, your guest satisfaction metrics will likely suffer. Long wait times, significant portion reductions, and major price increases can be pain points for many clients. Repeat customers are those who leave happy!
Simply continuing operations hoping you’ll break even or make money by night’s end isn’t good enough.
But enacting across-the-board menu price inflation isn’t the right move either. Instead, by setting clear profit goals and finding creative ways to meet them that won’t impact your guest satisfaction, you can help your restaurant weather the storm and even outperform under challenging circumstances.
About Smooth Commerce
Smooth Commerce is a digital ordering, customer marketing and loyalty platform for restaurants. We take ordering to the next level with personalized customer engagement, making your digital storefront the cornerstone of your brand. By solving more restaurant pain points in one digital platform than anyone else, we put you back in control of the customer’s experience with your brand to promote profitable sales growth.
If you would like to learn more or talk to a representative from Smooth Commerce about how our platform can help you meet your loyalty goals, contact us at firstname.lastname@example.org.