Inflation Takes a Bite at the Restaurant Industry; How Can Operators Cope?

As is the norm in the widespread economic landscape of 2022, inflation has well-and-truly hit the restaurant industry. In August of this year, the cost for consumers of purchasing food away from home rose by 8.3 percent compared to the same period in 2021. Additionally, menu prices at casual dining establishments rose by an average of 9 percent year over year from 2021. This inflation at the customer–facing end of the restaurant business has largely been fuelled by rapidly increasing operating costs – by as much as 11.7 percent. Making this problem more cogent is the fact that inflation isn’t forecast to ease until late next year, where it is predicted to fall to 3-to-4 percent by the end of 2023, according to economic projections by Kiplinger. 

This introduces a unique challenge to restaurateurs, but is still applicable for many businesses. According to a poll from Ipsos, meals purchased at restaurants and take out foods are usually the first extraneous expense to be cut by consumers. The decreased patronage along with inflation increases running costs, which means increased menu prices. These increased menu prices deter more diners, and then the operators are again forced to increase costs or decrease spending on quality products to survive. It’s very much comparable to the old adage of the snake eating its own tail – except while mystics say it’s a symbol for infinity, biologists – and in this context, economists – understand it’s certain death, usually caused by stress. 

So what can restaurateurs and food business operators do to cope in this economic landscape?

It's Time to Adapt

As with the start of COVID, the answer lies in the ability to adapt. In the context of inflation, however, it is a little more complicated than selecting an option from the myriad of food delivery partners and switching to home delivery. Adaptation in the face of inflation requires a multi-tiered approach overhauling both aspects of business: operation and business administration. 

Adaptation in the face of inflation requires a multi-tiered approach overhauling both aspects of business: operation and business administration. 

In terms of business operation, the adaptations aren’t dissimilar to those suggested in the early days of the pandemic, when it was essential for businesses to diversify their income streams. Many restaurants added delivery or take out capabilities, at home food or drink kits, and catering offerings. Some implemented loyalty programs to promote recurring customers. Others streamlined their menus, utilizing in-season produce that can be purchased for less than static menus that may experience fluctuating prices throughout the year.

The real money, however, is saved when restaurants overhaul the way they approach operations. For the average restaurant, the fun of bringing people an enjoyable dining experience and delicious food is often overshadowed for owners by the drudgery of back office tasks. Invoice processing, ordering, food cost management, and analysis are a time consuming, but necessary evil. As such, the ability to streamline and optimize these processes brings great opportunity for time and cost savings. 

It's Time to Get Digital

Similar to new fintech developments in the financial industry, new digital platforms now exist to help restaurateurs manage all of their backend processes; sso what should operators be looking for when sourcing one of these platforms? And, how exactly do they save restaurants money?

The first is through the ability to automate invoice processing. Every business owner knows what a chore manual data entry is, whether it’s paying or creating invoices. Operators should seek out platforms where invoices can be uploaded by photo, scan, or email, which will then be automatically categorized by the platform. This means invoices can be easily searched and prioritized by dateand prioritized by date to provide operators with a clear view of their cash flow. Ultimately, this helps restaurateurs save money in the long run, as they’re better able to manage their time  with invoices being uploaded and categorized within seconds,, their expenses, and avoid costly late fees when compared to manual processing.

Keep Managing Costs

The second aspect operators should be looking for is the ability to manage food costs while also gaining insights into profit and loss. A number of platforms show almost every aspect of a restaurant's costs inin one central place, including daily profit and loss, price changes in most-popular products, and even food usage. This ease of access to vital information means operators can make dynamic changes when item expenses change, enabling them to save money by avoiding the repeated purchase of items with fluctuating prices caused by inflation. 

The third vital aspect restaurateurs should look for is the ability to easily analyze the overall cost of their menu and recipes. Platforms have recently emerged to provide theoretical costs based on real-time ingredient prices and product mix data to pinpoint profitable items, as well as those with the best sell-through rates. These platforms also provide the ability to compare menu items within specific categories, like appetizers, entrees, or desserts to glean which plates and categories are the most profitable and which aren’t. This, arguably, is one of the most effective ways operators can fight inflation, enabling them to optimize their entire menu for maximum profitability. 

Although inflation is a scary reality, it’s important for food business operators to remember they’re not powerless. Through continued adaptation and the smart implementation of tech to  overhaul and optimize the way they manage invoices, understand profit and loss, and analyze their menu items, restaurateurs can keep their heads afloat. When inflation eases, as it is forecasted to, they can truly reap the benefits of streamlined processes while maximizing their profits.