Inflation forces the restaurant industry to get creative

Inflation has taken a bite out of the restaurant industry. While large chains and independent restaurants have access to better deals, due to their size, small businesses have been forced to reassess their strengths and weaknesses in dealing with this economic climate.

It doesn’t help that customers have been cutting back on fast food and casual dining, as high inflation burns a deep hole in their pockets, leaving less money for discretionary spending. According to industry tracker black box intelligenceThe restaurant industry has witnessed a continuous drop in steps for the past eight months.

high inflation
High inflation has caught the restaurant industry by the throat. (A waiter serves a young couple; Image Credit: Drazen Zigic/ Freepik)

Strong inflation forces the restaurant industry to innovate

Rising inflation has reduced the purchasing power of restaurateurs and customers. The US Department of Agriculture has recorded that the general consumer price index of food prices is 10.1% higher than in May 2021.

Inflation has affected the purchasing power of consumers as prices of poultry, seafood and even vegetables soar. Experts recommend sticking to seasonal menus so you don’t end up paying through the nose for an out-of-season item.

The restaurant industry is caught between two dragons as rising prices will scare away customers while maintaining prices as it squeezes already slim profit margins. The big chains have the bandwidth to trade and the cash to hedge against volatile market swings. On the other hand, family restaurants lack these guarantees but are much more agile and can adapt according to seasonal changes.

Limited-service menu prices increased 7.1% year-over-year in October, while full-service prices increased 5.9% according to new federal data released Nov. 9.

Large chains can set prices and have enormous bargaining power with their suppliers. Independent restaurants must work with what they have, as they cannot afford to change partners.

In the US, the Noodles&Company restaurant chain, with more than 450 locations, has signed an agreement to supply chicken in 2023. The restaurant chain estimates it will save around 2% relative to its third-quarter margin by the cost of goods sold. “As you look at all of the disruption in the supply chain environment, suppliers want some level of certainty in terms of purchase quantities, not just price,” Noodles CEO Dave Boennighausen said. CNBC.

Small restaurants cannot do this. Instead, they are adapting by reducing portions, offering other varieties, or even removing certain menu items. In the food industry, it is important to be agile. Some restaurants have started offering new dishes that will work with any budget. For example, instead of an expensive steak, customers can choose a nice chicken salad or entrees that will nourish them while providing a good dining experience.

small business in the restaurant industry
With strict budgets, people are very conscious of their spending habits, as inflation reduces their purchasing power. (A woman looks at receipts and plans her budget; Image Credit: Karolina Grabowska / Pexels)

According to the Bureau of Labor Statistics, the prices of food eaten away from home rose more than 8.5% in the past year to October 2022. Changes brought about by climate change and worsening geopolitical instability have even caused a shortage of your favorite foods at the local grocer.

For family restaurants, communities also come together to keep a local business running. While big chains have brand power, small restaurants make their customers feel like family and gain goodwill that helps them survive lean periods.

For large chain restaurants, the price can also vary from location to location, depending on numerous factors, such as whether it is a franchised restaurant or company owned. Small businesses don’t face this problem and customers don’t compare prices and quality. In a survey conducted by PAYMENTScustomers admitted paying attention to price differences when visiting chain restaurants.

This year, fast food chains have raised prices more aggressively than others, since they had low prices to begin with. But as inflation continues to burn through pockets, both large chains and mom-and-pop restaurants are concerned about keeping their customers, who are also struggling with a general increase in the cost of living.

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