Sharing Success

Facing Inflation

Back in 2008, restaurateurs faced a serious economic “double whammy.” On the one hand, guest counts were down because loyal customers could no longer afford to visit as often (due to the recession). On the other hand, the cost of food commodities, including grains (wheat and corn), meats (beef, chicken, pork), and dairy (cheese, milk), etc. had jumped 30% to 40% in a relatively short period of time.

While overall guest counts became more stable over time, rising ingredient costs began eroding restaurant profit margins. As profits kept shrinking, most Independent pizzeria and Italian restaurant owners recognized that staying in business would require raising their menu prices to help offset the significant increase in food costs.

Since that time, most of the Independent operators I have talked to have said several things happened in their businesses after raising their menu prices:

1) Loyal customers kept coming back after raising menu prices. In fact, many operators said their guests offered little or no negative feedback. Even when they increased menu prices, Italian food was still one of the best dining values around.

2) They wished they had done it earlier. Raising prices allowed them to restore profitability and reduce financial anxiety.

3) Competitors who tried to cut costs by cutting quality did not last. Many mentioned restaurant competitors who had responded to rising food costs by switching to cheaper (lesser quality) ingredients and went out of business as result.

Since that time, commodity costs relaxed a bit during 2009. However, since July 2010, wholesale prices for many staple foods (flour, meat, cheese, etc.) again ramped up 20% to 50%. The price of feed corn actually increased over 70%, approaching its 2008 high levels.

These commodity increases are impacting small Independents and large chains alike. Even McDonald’s recently announced that it was responding by raising menu prices.

As owners of Independent businesses, how each of us chooses to price our offerings is one of the most personal decisions we can make. While I do not pretend to know what is right for your business, as long as commodity costs are rising, I suggest you consider the following:

1) All businesses must be profitable to exist. Remaining profitable requires charging more for your offerings than they cost to make. If your input costs significantly increase, eventually, so must your prices.

2) ALL restaurateurs are in the same boat. So you do not have to spend much time wondering what will happen if you change and they do not. They are facing the exact same pressures.

3) Have confidence in the superiority of your food. If your food quality is sufficiently superior to attract and keep loyal customers, they will likely remain loyal after reasonable price increases. (If you are not confident in your food quality, consider further improving your ingredients until you gain that confidence.)

No one knows how long food costs may stay at current levels or even increase.

However, one thing is for sure. Regardless of commodity costs, it is serving consistently superior food which keeps loyal restaurant patrons coming back for more!