27.6.2022

How Restaurants Can Navigate Food Inflation and Protect Profitability

Written by Conal Yarwood-Frost

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In the last couple of years, the hospitality industry has faced a series of unprecedented challenges. In a show of resiliency, however, many businesses have readjusted their processes to meet these challenges head-on. 

In 2022, a new challenge for restaurants and other hospitality businesses has raised its head. Food price inflation has led to increases in food costs and continues to leave some restaurants struggling to cover their overheads. 

While there is no one way to “fix” inflation, there are ways restaurants can operate to navigate the storm and protect their profitability. In this blog, we’ll be explaining the reasons behind the current rise in inflation rates and sharing some helpful tips to help restaurants hit by price increases. 

What is inflation? 

If you’re not in tune with the financial markets, you may not have a clear understanding of what inflation actually is. While it has an impact on day-to-day life for the public and private sectors alike, it is still misunderstood by a large majority of people. 

In simple terms, inflation describes how the purchasing power of a currency weakens over time. This weakening of purchase power in turn leads to increased prices for suppliers. The higher the inflation rate increases, the faster prices begin to snowball down the supply chain. 

In certain situations, the opposite of inflation, aptly known as deflation, can occur. Deflation happens when the purchasing power of a currency increases and prices drop. This is usually seen when demand decreases and excess supply increases. 

Why does inflation matter?

Inflation is an issue that affects businesses across all industries and tax brackets. While some suppliers may be able to take advantage of the situation and increase their profits, inflation is generally a bad thing for both businesses and consumers. 

When inflation occurs, consumers suddenly find that they can’t purchase as many goods and services as they used to, this means they spend less overall. Restaurants see the knock-on effect of that as food supplies and operating costs begin to grow. This, combined with potential diners opting to eat at home, can lead to a dangerous situation.

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How to survive inflation

While the issues with inflation may seem insurmountable, there are ways to help your restaurant not just survive, but thrive, despite the current food inflation forecast. Restaurant owners have the option to use both traditional and modern solutions to help their businesses. 

Below, we’ve compiled a few tips that will help you navigate this difficult time in the hospitality industry. While they’re not a one-size-fix-all solution, these tips should go some way to alleviate some of the pressure your business may be feeling.

Raise your own prices

One of the main issues with inflation is that it affects every part of the supply chain. Prices for raw ingredients rise, fuel costs for transportation get more expensive and so on and so on. It should go without saying, that to keep overheads under control, your own prices are going to have to rise. 

While business owners may be hesitant to do this, the alternative isn’t necessarily better, since higher prices on your food mean you won't have to sacrifice quality. The trick to making a perfect price raise is to balance it with benefits for your customers. This may mean offering a good loyalty scheme or offering slightly larger portions. 

If you’re worried about your customers' reactions, you may find sympathy with them if you explain the situation. This can be done with flyers or by adding a small explanation to your menu. As long as the quality of your food and customer service stays the same your customers should be reasonable. 

Maximise your margins

As mentioned above, to keep up with the inflation rate of food, you must find a way to lower your overheads, whilst carefully maintaining your pre-inflation standards. Customer experience is the be-all-end-all in hospitality so it’s important to maintain good service and food quality. 

One way you can maximise your profit margins is by giving your customers a better deal than your competitors. There are a number of different ways you can do this including offering freebies, price matching other restaurants in your area, and putting on events to attract new business. 

Before you offer these extras, be sure to cost them properly and ensure you have the budget for them.

Take control of your costs

Running a restaurant is undeniably difficult. There are a many seemingly menial decisions to make every week and it can be hard to stay on top of things. This is why many restaurants spend more money than they need as operators look to maintain the status quo by signing off on the same outgoings every month. 

To keep up with inflation, you should take some time to sit down and properly assess your budget. Going over your costs with a fine-toothed comb will inevitably bring unnecessary outgoings to light, and by cutting them out of your budget, you'll be able to minimise your overheads. 

Some electronic point of sales (EPOS or POS) systems, such as the Epos Now Complete Solution, automatically compile business reports using various data points that can help with your costs. Automatic business reports give you real-time ingoings and outgoings that will help you identify where to tighten up your budget. 

Evaluate labour costs

One of the biggest expenses for any restaurant is its labour costs. Most restaurants employ multiple servers, chefs, and maintenance staff that are all integral to the day-to-day business of the restaurant. 

By minimising labour costs as much as possible, you can help maximise your profits in line with inflation. There are a few ways you can do this including: streamlining your staff to essential members only, building good relationships with your team, and reducing staff turnover. 

If your restaurant is a pleasant place to work, your staff will be more likely to be invested in the business’ success. Putting the effort in with your staff will make negatives such as overtime and necessary redundancies easier to manage for everyone. 

Inflate your profits with a powerful POS system

At Epos Now, we believe in offering our customers a quality POS system at a reasonable price. Our Restaurant Solution is designed with the hospitality industry in mind and features many useful tools and programmes that will help you maximise your profits no matter the inflation rate. 

If you’re interested in finding out how Epos Now could help your restaurant, get in touch with our expert team below.

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