Everyone from home cooks to mom-and-pop café operators to chain restaurant companies have to concern themselves with food prices in an economy just beginning to right itself after a prolonged slump. Food prices jumped 3.9% last month, the biggest increase since 1974, and forecasts call for additional increases this year.
Several international restaurant companies have included cautionary notes about the potential impact of higher food prices this month, while remaining largely optimistic about their ability to absorb them. Darden Restaurants CEO Clarence Otis said higher food costs and gas prices, which the company expects to see rise up to 2% in the next two quarters of the year and jump between 3.5% and 4% in the 2012 fiscal year, are likely to present hurdles for its Olive Garden, Red Lobster and Longhorn chains, but the hit won’t be nearly as painful as the recession. DineEquity CEO Julia Stewart said the company’s Applebee’s and IHOP operations have room to absorb the higher prices, a situation helped by the purchasing co-op the sister chains formed two years ago to obtain better pricing on bigger volume purchases.
Some analysts even predicted earlier this year that higher food prices could actually be good news for restaurants, at least the bigger chains that can lock in long-term prices on many commodities. In January, NPD Group reported that higher food prices at the grocery store were driving more consumers to restaurants. Of course, this trend can only continue if eateries continue to find ways to hold the line on menu prices.
While volume discounts and the ability to negotiate long-term contracts help big chains, independent eateries typically have to find other solutions to higher costs, and for many the solution may be in foraging for food closer to home. Some independent restaurants say they’re more insulated than others from both higher prices and weather-related shortages of tomatoes and other food products because they’ve been sourcing locally for years and don’t depend on imported ingredients.
Another way to deal with higher prices might be to reconfigure your menu based on the ordering behavior of your guests. A story this week on PizzaMarkteplace.com offers insight into how restaurants can turn their menus from mere price lists to merchandising tools that display and position higher-profit dishes in the places where patrons are most likely to look when ordering.
How are you dealing with higher food prices? Does the arrival of spring have you looking around for more affordable local options? Tell us about it in the comments.
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I own a restaurant just outside of DC, in Silver Spring, MD and am using a service called Foodem.com. They have brought food distribution companies on their marketplace where a restaurant can buy from different food sellers at competitive prices. The site does the comparison shopping for me and saves me time when ordering my products as well. Above all its free to use; can't beat that.
Some thoughts on strategies for menu price increases to offset rising food prices: http://bit.ly/euAC8w
Tom Kelley
Concept Branding Group
My recent post Be your own superstar Americas Next Great Restaurant- Kitchen Nightmares- create your own restaurant ownership dreams
Another method is to increase the focus on selling higher margin products to the customer coming through the door. Espresso based drinks, latte, cappuccino, and iced coffee offer great margins and with the new systems no additional skill is required and they systems can be controlled to avoid shrinkage. If you can sell 7 espresso based drinks a day you are break even and it will increase your dessert sales. Every drink you can sell above the 7 leaves you with $2.50 plus of additional ticket profit at a minimum. Don't lose you clients to the coffee shop down the street. Sell them a dessert and latte.
Vanee has been working with operators to help them manage through this crazy inflationary period. Introducing new items designed with a lower food cost won’t upset your customers the way cheapening your existing menu would. We discussed this exact issue on our blog at itsmyingredient.com – check it out!
[...] How Restaurants Are Coping With Rising Food Prices Everyone from home cooks to mom-and-pop café operators to chain restaurant companies have to concern themselves with food prices in an economy just beginning to right itself after a prolonged slump. Food prices jumped 3.9% last month, the biggest increase since 1974, and forecasts call for additional increases this year. Smart Blog on Restaurants… [...]