Restaurants continue to struggle with food costs and labour shortages, but some experts are seeing inflation as a catalyst for positive change. David Hopkins, president of The Fifteen Group, sees the situation as a great opportunity for restaurants to tighten their operations and increase efficiency.
Adjust pricing to address inflation
“Restaurants have always had to face challenges from inflation to minimum wage, but right now, they have the ability to increase prices. In the past, consumers were completely opposed to restaurant price increases, but with all the attention that inflation has received, they are more open to restaurants adjusting their profitability models to accommodate for inflation,” Hopkins says.
Because customers are seeing food costs rise in grocery stores, they can relate to the rising costs restaurants are facing and are likely expecting to see menu prices rise as a result. That awareness means that customers “get it,” and it encourages restaurants to adjust their pricing to reflect their profitability. Where there may have been some hesitation by restaurants to raise their prices in the past because of competition or customer pushback, the fact that inflation exists across the board provides a unique opportunity for restaurants to increase their prices.
Of course, Hopkins emphasises the importance of “knocking it out of the park” once you decide to raise your prices. Guest experience has always been the top factor for restaurant success, and it is still the number one priority. He emphasizes that consumers are not likely to accept a price increase with mediocre service. With prices rising, it’s more important than ever that restaurants are delivering a 10 out of 10 experience.
Improve your business model
The second opportunity available to restaurants is to be able to strategically revise their business models. “So many restaurants don’t operate as effectively as they could be operating,” Hopkins says.
In today’s economy, more businesses are taking a really hard look at their business models to address issues that need improvement, from menu efficiency to hours of operation to cost control, profitability, labour management, and more.
This targeted look at restaurant profit models is something Hopkins says many restaurants should probably have done long ago. Where they may not have had to focus so strictly on the bottom line before, they are now in a position where improving their operations is critical.
Engineer your menus
Menus can be a part of increasing efficiency, but Hopkins cautions restaurateurs to “be smart about how you are capturing that price increase.” Rather than simply increasing your menu prices, think about creative and strategic ways to adjust your menus to work better for your business, creating less of an impact on the consumer, while still capturing the same (or higher) profit.
Some restaurants are making the mistake of raising prices by a set percentage. If your restaurant typically sells a steak entrée for $40 and it now has to be priced at $80 because of inflation, Hopkins suggests that engineering may be necessary to get to the real profit margin.
In the case of the steak, it may turn out that this item just no longer works with your profit strategy so taking it off the menu and adding more approachable items may be the way to go. You don’t want to make the mistake of coming across to your customers as gouging and turning them off with the higher increases.
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The current economic landscape is compelling restaurants to take a really hard look at their businesses – in a good way. As Hopkins says, “Inflation is forcing restaurants to streamline their menus, think efficiently about labour, work on their profit models, properly engineer their menus, look at minimizing waste. Inflation can be a catalyst for a great thing because it’s going to improve operations across the whole industry.”
Learn more about this topic in David Hopkins’ upcoming webinar. Visit this link to register.