As I’m sure all of you are aware, a lot of countries have been struggling with inflation. Although things have overall slowed down a little, some countries have found it harder to bring down price increases than others (the Netherlands, where I am, included). One of the industries that has been hit very hard by this is the hospitality industry, which was still trying to recover from the pandemic to begin with. This can partly be explained by the fact that two of the main factors that currently drive inflation are food and energy prices. Another reason why it impacts hospitality more than some other industries is because going out to eat is not as essential as, say, paying your energy bill, which has become harder for a lot of people. Staff shortages, exploding rents and notoriously low profit margins do not help either. Regardless of what the reasons are, the hospitality industry in general, and restaurants in particular, are going to have to ways to deal with this reality. This month’s column then is focused on providing some possible approaches.
One of the ways to increase profit margins – and therefore your buffer in times of inflation – is reducing food waste. To illustrate: in the UK, restaurants are responsible for £682 million worth of food waste per year. The potential savings are therefore huge. According to the results of a 2019 study, restaurants, for every £1 they invest in reducing food waste, can make a profit of £7 within three years. 76% of businesses even recouped their investment within one year. Restaurants can tackle food waste in a variety of ways, such as training, proper storage, inventory tracking, sales forecasting, and menu adjustments. I have covered this topic before for Foodservice Consultant, so I recommend that those of you interested in the topic take a look at that.
Another tool that can be used to deal with inflation is, you guessed it, prices. The most obvious thing to do is increase prices across the board. While this can certainly be valid (why should you be the only one to not increase prices?), even unavoidable, especially so in countries in which middle class restaurants have chronically undercharged their customers (looking at you Germany), it can also backfire, because it might make it even harder for your customers to justify the expense at this point in time. If such price increases are indeed unavoidable, restaurants should consider communicating this to their customers. They often respond well to transparency. It also helps if the increase in prices is combined with a relative increase in quality, for example by switching to more sustainably sourced ingredients, or by upgrading the ambiance (which does not have to be costly). Raising prices across the board is not the only way to use this tool, however. Restaurants can also experiment with price diversification, i.e., expanding the menu to include a wider variety of price points. Offering both upscale and budget-friendly options can help maintain revenue streams when some customers have to cut back while others are still happily ready to spend money. Another, more unconventional method is dynamic pricing. Hotels do it, ride-hailing apps do it, so why not restaurants? Depending on the locations and the type of customers restaurants serve throughout a day, it can be worth considering.
Adjusting the menu
Menu-adjustments cannot just be used to justify higher prices or to tackle food waste, they can also help lower the cost per plate, by accommodating changing ingredient costs. For example, sometimes more expensive ingredients can be replaced with cheaper ones, without compromising the quality of the dish. Here too transparency can help, especially when it is more noticeable. Similarly, some restaurants are still in the habit of adding a little too much to their dishes, even for their customers tastes. Those things add up. To illustrate: in the 1980s American Airlines discovered 75% of their passengers were not eating the olive that was supposed to be the hearty cherries on top of their salads. They cut it and saved $40,000 in one year. Looking at those numbers, one might forgive them cutting the olive even if 75% had eaten the olive.
Finally, another tool to tackle inflation is to pay better wages. Wait, what? You read that right. Paying more competitive wages reduces turnover, which leads to a more skilled and dedicated workforce. This can enhance overall operational efficiency and customer satisfaction, thereby mitigating the impact of inflation.
Restaurants, like all of us, are going through a difficult time with complicated problems to which there are only imperfect solutions. The ones on this non exhaustive list are therefore far from silver bullets. I nevertheless do hope that they can serve as a starting point for some restaurants. After all, although they might not technically be essential, who would want to live in a world in which their favorite restaurants had to close their doors?
About the author:
The co-owner & founder of Millennial & Gen Z marketing and employer branding agency 1520 in Apeldoorn, the Netherlands, Marius Zürcher was a participant at FCSI’s ‘Millennials’ focused roundtable at INTERGASTRA and a speaker at FCSI workshops about industry trends.