5 ways restaurants can deal with menu price inflation

5 ways restaurants can deal with menu price inflation 

Thought Leadership

How should restaurants tackle inflation without scaring away customers? Should owners just go ahead and raise their prices? Or is there a better way to manage rising costs and pad bottom line while taking a more customer-centric approach?

Author: Naji Haddad, Deliverect’s Middle East General Manager

While the worst of the global pandemic may be behind us, restaurant owners continue to feel the pressure as they face staff shortages, health-related challenges, and soaring food and operating costs.

In 2021, inflation climbed to 14.8% in the MENA according to IMF Reports. With the entire world experiencing another wave of inflation, these rising costs impact every industry, forcing businesses to look at their offering strategically to navigate the price escalation.

But how should restaurants tackle inflation without scaring away customers? Should owners just go ahead and raise their prices? Or is there a better way to manage rising costs and pad bottom line while taking a more customer-centric approach?

There are five tactics to navigate menu price inflation smartly and sustainably.

Strategically raise prices

Raising menu prices is the most obvious way to cope with soaring food and operating costs. But blindly raising prices can cost restaurants their customers and ruin the brand’s value proposition or even its reputation. That’s why it is crucial to adjust menu prices strategically while keeping the customer in mind.

When raising prices, restaurants should consider the following best practices:

  • Make price raises over an extended period to spread the impact on customers. Two to four pricing rounds per year, each below a 2%-increase, are acceptable according to industry standards.
  • Consider small price raises on top-selling items, such as signature dishes, which customers are likely to return for.
  • Analyze the competitors’ price points to assess the restaurant’s value equation and keep it in line with similar restaurant brands.
  • Adjust the descriptions of dishes that have been repriced so customers can’t compare like-for-like, and emphasize the value and ingredients offered.
  • Carefully monitor the guests’ behaviour following pricing rounds, and restaurant owners shouldn’t wait to make corrections if they see a drop in orders for repriced items or dishes.

Use menu engineering

In this uncertain economy, the cost of raw materials can change overnight due to supply chain disruptions and strains in global production. That’s why raising menu prices can only take restaurants so far.

A better strategy for restaurants to maintain a profitable menu is to implement menu engineering. That means analyzing its offering based on data (including food cost) to ensure every item on the menu is cost-effective and popular with customers.

When owners get this part of the engineering process right, they’ll be able to make informed decisions about which dishes to emphasize, which prices to increase, and which items to scratch off the menu. And optimizing the offering can help restaurants streamline kitchen operations as well!

Another integral part of menu engineering is reviewing the menu design. Even small changes can help attract customers to order specific dishes on the menu or entice them to select more cost-effective items like sides, drinks, or appetizers.

Reduce food waste

Because raising prices is often the last resort for restaurant operators, many look into other tactics to improve food costs first. Fighting food waste is one surefire strategy to balance lower food costs and quality ingredients.

Practicing better inventory control and shopping smart are good starting points. For example, restaurants should avoid buying expensive raw materials that are used only in a few dishes or as garnish. Instead, the kitchen can look for ways to cross-utilize ingredients across the menu and increase their use of value-added products that can drive higher profits.

It would also be a good idea for inventory managers to schedule multiple smaller deliveries throughout the week instead of ordering one large batch for an entire week. This will ensure that ingredients are not being overordered.

Another way to reduce food waste is to adjust portion sizes. Before restaurants make  these adjustments, owners must understand which dishes have wiggle room. They should look at customers’ plates returning to the kitchen. Are people eating the entire dish, or are there leftovers consistently?

Creating limited-time offers can also help prevent food wastage. They enable restaurants to use up ingredients that are about to expire or raw materials that are expected to become much more expensive over the coming weeks.

Finally, correctly storing food can help restaurants manage food cost, helping avoid steep price raises that trickle down to consumers.

Invest in your relationship with vendors

While vendors cannot control price fluctuations, they are aware of market trends and, therefore, can give restaurant owners a heads-up when the prices of ingredients are about to go up. That’s why restaurateurs always need to maintain a good line of communication with vendors.

The sooner they know that prices are about to increase for specific ingredients, the sooner they can work on sourcing alternative raw materials and adjusting the menu accordingly. A slimmed-down or modified menu is always better than having to disappoint customers when they order their personal favorite, only to find out it is out of stock.

Increase off-premises orders

Another way for restaurants to navigate menu price inflation is by encouraging customers to order food for delivery or takeout.

Offering online ordering options provides an additional revenue stream. But, more importantly, restaurants with an efficient system for taking and delivering online orders often find that off-premises orders are more cost-effective and profitable. That’s because it’s possible to automate the online order flow, which saves labor, time, and money.

Besides, today’s consumer is prepared to pay a premium for restaurant-quality food delivered to their doorstep. Therefore, if restaurants slightly raise online menu prices, they probably won’t see much attrition.

When countering soaring food prices, restaurants should always ensure customers get value for their money.

As you can see, there are many ways restaurants can combat menu price inflation while still making sure customers can enjoy high-quality food at fair prices.

Menu engineering, preventing food waste, improving communication with vendors, and boosting online orders are all feasible tactics for restaurants to maintain a healthy balance between your food cost and value equation.

Efficiently running back-of-house operations is key for restaurants to manage the ups and downs of today’s economy. Running a tight operational ship will also help you offset the impact of price inflation on the restaurant business as much as possible.

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