As the Federal Reserve continues to raise interest rates, restaurateurs have every right to be concerned. There are still sectors of the restaurant economy that have yet to fully recover from the COVID-19 crisis, and now the threat of a recession is upon our collective doorsteps.
Nevertheless, even if an economic downturn is inevitable, restaurateurs are not helpless. Let’s explore some practical ideas you can use to minimize potential disruption to your business.
How Inflation Affects Restaurants
Simply put, inflation means everything costs more.
For restaurants, this means increased expenses. Examples include:
- Rent and charges
- Kitchen equipment and supplies (i.e. gas, tools, utensils)
- Restaurant equipment and supplies (i.e. towels, sanitizing tools)
- Work (i.e. chefs, waiters and waitresses)
All of these factors can present a challenge to restaurant business models and test the resilience of small businesses.
One challenge many restaurants face in particular: there’s a limit to how much they can raise prices to cover rising expenses. This is especially true for fast food restaurants, where customers may decide to cook their meals at home rather than paying an extra two bucks for a burger or pizza.
High-end restaurants are not exempt either. High-end foods like steak and seafood can see less interest from customers during times of inflation, which can hurt revenue.
What is causing food inflation?
Several factors are at play.
First, the coronavirus has hurt global supply chains. Lockdowns caused by the pandemic have prevented farmers from distributing their food and compounded an already growing labor shortage. In early 2022, the Russian invasion of Ukraine further damaged the supply chain due to sanctions. It should be noted that Ukraine is also currently the world’s fourth largest corn exporter.
Combine these problems with droughts in countries like Brazil, wheat production shortages in China, and natural disasters in other underserved countries. Finally, add rising domestic inflation to the mix and you have a perfect storm for food prices worldwide.
How do restaurants deal with inflation?
To combat the turbulent economy, restaurants are coming up with innovative business continuity plans. Here are some examples :
- Lower price. At first glance, this may seem counterintuitive. But lower prices attract customers, and restaurants using this tactic are betting on converting occasional visitors into repeat customers. When the economy recovers, these new customers will be able to continue to provide business at profitable prices.
- Cut premium items from the menu. Some restaurants are removing items like steak and seafood from their operations. If customers aren’t ordering them, it may make sense to temporarily remove them from the menu to save on ingredient costs.
- Raise prices. The most obvious strategy is to simply increase the amount you charge your customers. This method may carry more risk, as it may discourage some customers. But there’s also a chance that your most loyal customers will continue to support your business.
- Upgrade to delivery or pickup only. One way to reduce expenses is to reduce the rent. Restaurants that traditionally allow on-site dining may decide to stop renting physical locations and switch to a delivery or pickup-only model. It can also help save on utility costs.
What tactics should restaurant owners use to increase their profitability?
In general, increasing profitability means either reducing your expenses or increasing your income. Since the restaurant industry covers a wide range of businesses, there may not be a one-size-fits-all solution.
Nevertheless, there are a few general concepts that any restaurant can use. When it comes to cutting expenses, for example, you can explore ways to reduce the cost of your ingredients. One way might be to place larger orders of non-perishable ingredients to take advantage of bulk discounts. To increase your revenue, one strategy could be to explore scalable digital advertisements, especially if your primary marketing strategy currently relies on physical flyers or word-of-mouth.
In the next section, we will explore in more detail other ways to improve both profitability and adaptability.
6 ways restaurants can lessen the impact of inflation
Optimize your digital presence
As mentioned above, one way to reduce expenses is to look into digital marketing. Internet and social media advertising can allow you to effectively reach new customers at scale. The difference between advertising to 100 people and 100,000 people may be just one click. And as consumers increasingly make decisions based on what they see online, it can be a much more effective marketing channel than traditional advertising methods.
Also consider allowing customers to order online if you don’t already. This can take the form of online orders through your website or a delivery service like DoorDash or GrubHub. One of the potential benefits of this feature is that it can allow you to better reach young people who aren’t shy about ordering food through their mobile devices. Perhaps more importantly, however, it could also allow you to minimize the use of your physical locations until the economy recovers, a move that can help you save on rent and utilities.
Perform a top-down analysis of what you offer, including the cost of each item and the revenue it generates. Determine if there are unnecessary ingredients or if there are specific dishes that are rarely ordered but take up a lot of inventory space.
While it’s not fun to shrink your menu, it could allow you to run your operations more efficiently and double your key revenue drivers. Remember this is only temporary if you wish. You can always tell customers that these items will be back in the future.
Analyze your daily operations
First, write down your daily process, including everything from opening your restaurant to preparing food to washing up. See if you can identify any inefficiencies. Were there times during the day when you hired more waiters or cooks than needed? Could you save on utilities by running cleaning processes through equipment or machines rather than doing them manually?
The lower your expenses, the better positioned your restaurant will be to survive inflation.
Treat your staff well
In the previous point, we talked about the potential need to reduce staff. On the other hand, make sure you treat your staff well too. Restaurant staff turnover rates are high and the last thing you need is to spend hours looking for new employees rather than growing your restaurant.
One way to increase the sustainability of your staff is to compensate them well and to listen to their concerns. Give them time off if they need it and do whatever it takes to make them enjoy their jobs. It goes without saying that happy employees are much less likely to quit.
Delivering quality no matter what
As a restaurateur, you already know how important the customer experience is. Things like cleanliness, taste, and atmosphere can all increase the likelihood of returning customers. High-quality restaurants also get great reviews online, which helps attract new visitors to your establishment.
As inflation increases, remember not to cut corners to provide the best experience possible. Repeat customers can be a big part of your revenue stream, so do what it takes to keep them coming back.
Consider increasing your cash flow through financing
If cash is tight, one way to keep operations afloat or seize new business opportunities is to secure small business financing. From small business loans to start-up loans to business credit cards, there are plenty of financing options to explore for small business owners, startups, local businesses, solopreneurs, entrepreneurs and entrepreneurs. other small business communities. These include loans from the US Small Business Administration (SBA) and private finance providers.
The easiest way to find the right financing option is to use Nav. Create a free account to instantly compare your best options based on your business data. We’ll also show you exactly how to establish business credit so your restaurant is ready to lend.
Rate this article