How Is Inflation Affecting Restaurants?

You can't scroll news sites without seeing more articles about inflation, but was does it mean for restaurants? Modern Restaurant Management (MRM) magazine quizzed expert Kathryn Petralia, co-founder of Kabbage, an American Express Company, for her analysis on what restaurants owners need to understand about inflation. 

Just how does inflation affect restaurants? 

Shifting costs are always affecting the profitability of running a restaurant. The unusual part is when inflation impacts all parts of the business all at once, and at a faster rate, from labor costs to materials and ingredients. Business owners should routinely track increased costs and adapt. Those who don’t are effectively lowering their prices. 

What are best practices for restaurant owners and operators to manage costs right now?

Understand if your prices are keeping pace with inflation and maintain a markup that matches the costs associated with paying suppliers and staff. Although the short-term effects may not be obvious, over the long term they can be costly. The outcomes you want to avoid are eroding profits and the inability to attract and pay skilled employees.

Restaurants are dealing with the dual hit of labor shortages and supply chain challenges? What is some advice for them to contain costs and stay profitable?

First of all, these challenges are affecting all businesses— so please know you’re not alone. Restaurant owners need to work their hardest to prioritize staff retention, actively hire for open roles, and seek new technologies that help reduce costs and more effectively manage cash flow. Consider options such as food-delivery services to attract and retain new customers, QR codes to reduce menu costs and expedite orders, using social media and other potentially low-cost digital ways to attract customers, and online business checking accounts that cut out unnecessary fees are all great ways to proactively manage costs.  

How is inflation affecting food prices?

Hiring is difficult, people expect to be paid more, and supply-chain disruptions are all contributing to food price inflation. While some food categories have been impacted by inflation more than others, everyone’s feeling the impact, whether that’s at a restaurant or the grocery store. 

What are some best practices for restaurant owners to raise menu prices the right way?

Everyone’s aware of our unique economic situation and, hopefully, are more understanding when restaurant owners need to adjust as a result. Although, if a restaurant owner is really looking for a creative way to adapt, periodically changing the menu may help. This is a somewhat easy way to introduce new or seasonal items, which may help justify adjusted prices. 

Despite the high rate of inflation, Yelp found that diners are searching for higher-priced restaurants? Why do you feel that might be?

An interest and willingness to pay more for certain dining experiences is a great sign. As a restaurant owner, I would feel optimistic as that shows customers are prioritizing quality over cost.