In the past few years, restaurant inflation has ballooned, with food costs affecting the full range of menu items. How to price food to sell has become a primary concern for restaurateurs who need to keep their profit margins healthy enough to stay in business. Let’s take a closer look at how food and other overhead costs have changed over the past three years, and what operators can do to get profits up.
How does inflation affect restaurants (and what to do about it)
Restaurant inflation has been rising in recent years and accelerating since 2021. DoorDash’s 2021 Economic Impact Report from that same year states, “42% of merchants reported that the cost of food and other supplies ranked as one of the top two concerns impacting their business, and 35% reported that difficulty finding workers was another.” Those two issues collectively have accounted for smaller menus and higher prices as restaurants struggle to remain profitable.
Source: NRA 2022 State of Industry Report
What this means for consumers is less choice when it comes to dining out. Meanwhile, restaurant owners are in a tight spot, trying to figure out how to provide quality food and still make a profit — and it’s not as easy as making diners pay more.
Source: Restaurant Menu Pricing: How to Price for Profit
How to increase your restaurant’s profit margins on food
As if restaurant owners didn’t already deal with thin profit margins on food, now they have to save money wherever they can while sourcing ingredients, cutting restaurant food costs, and finding suitable employees. From the menu to the ingredients that make it, there are a few straightforward ways to refine your offerings and reduce your costs while dealing with growing restaurant inflation.
1. Streamline your menu
The fewer the dishes, the fewer the ingredients — and the less training needed for staff to prepare, cook, and serve your entire menu. By cutting down on menu items, you will also save on space to hold ingredients that expire quickly or require expensive refrigeration. Fewer items mean that your staff can become experts and serve up the tastiest, highest-quality food possible on a focused menu — so it’s no wonder that shorter menus are becoming more popular.
2. Plan your menu around a set of core ingredients
This isn’t a new strategy. In fact, high-end restaurants have stuck to this tactic for decades, knowing that the more dishes share ingredients, the more economical a menu will be. Even when the ingredients are more expensive, buying in bulk for multiple dishes stretches both the food and the dollar.
Source: US Bureau of Labor Statistics
3. Use cost-effective ingredients
Substituting expensive ingredients for cheaper ones means that restaurant food costs stay down and restaurant profit margins on food go up. You can also adjust to changing food costs by listing a market price on the menu instead of a fixed price.
4. Create add-on menu items
Call them tapas. Call them appetizers. Whatever works for you and your clientele, but a selection of easy-to-cook meal additions can bump revenue by piquing diners’ curiosity. Design plates are intended to be shared so the cost is split across the table. How to price food to sell? Make it small, easy, and affordable for everyone involved. That includes you and your staff, too.
5. Get tasty with set menus
Set menus are often perceived as the domain of the most exclusive and expensive eateries, but restaurants of all kinds should consider this approach. Even a single set three-course meal can provide leeway for your other menu items.
How to mitigate restaurant food costs
Inflation affects restaurants by chipping away at profit margins on food, and that trickles down to the plate quickly. Here are some tips on how to keep costs down while restaurant inflation climbs.
Source: Grocery prices per month and year from US Inflation Calculator
1. Buying in bulk
How to price food begins with how you buy it. Bulk up with big buys on the staples and anything that can be kept without loss of quality. Technology is your friend: a good inventory management system, or even an Excel spreadsheet can help you stay on top of your stock. However, keep an eye on those expiration dates: if you buy too much, and the food expires before you can use it, the net cost rises.
2. Weigh imported versus local
Where you source your food makes a big difference to your costs. Buying local might seem to cost more, but it can make a big difference to freshness and seasonal menus, not to mention helping you build a relationship with your community. Research what’s available in your area — which can be as simple as connecting with other restaurants in your area to find out where they get their produce — and compare the cost of each ingredient to discover whether local or imported would be cheaper. By cutting costs on some ingredients, you might be able to splash out on local ingredients for bespoke, seasonal dishes.
3. Trim fat and tighten up processes
Operational efficiencies are an integral part of any restaurant, but in this age of rapid restaurant inflation, the ways we work are as important as the expenses we incur. Reduced hours, more training, and a streamlined in-house process will bring down costs. Regularly review all of your expenses to see where you can make small changes that will result in bigger profit margins: rent/mortgage, kitchen equipment, utilities, technology systems, insurance, property taxes, takeout packaging, marketing and advertising, repairs, and maintenance.
4. Get diverse with staff roles
Reliable staff are hard to find in times like these, and training them can be even harder. So, when you do find great employees, try training them in as many and varied roles as possible. This is no time for ego: cooks can wash dishes, servers can host, and barbacks can serve tables during slower shifts. The more an employee can do, the better. Even if training staff in multiple areas means paying them more, they get to develop their careers, and you get to cut costs — as a raise for one person is more cost-effective than hiring two more people.
5. Increase prices (a bit)
Time to think incrementally. While you should be raising menu prices to account for inflation, this is not the time to spook customers with a massive price hike. Food costs for restaurants may be high, but your customers are feeling the same pinch at home with groceries — and if dining out is cost-prohibitive, they’ll opt to prepare their own meals.
More ways to fight restaurant inflation
Inflation might be one of the toughest issues facing restaurants today, but with some careful planning, you can lessen its impact on your business. For more insights on how to mitigate food costs and maximize your profits, check out our blog posts on Calculating Food Cost Percentage for Restaurants and How to Optimize Your Menu for Profit.
