Effect of Rising Food Prices in 2018 on Your Restaurant. How to Cope It?

Restaurant owners enjoyed running their business in 2017. Is 2018 different or not with the rising food prices? Will rising food prices affect restaurant industry? It is a blend of positive and negative effects.

According to the United States Department of Agriculture’s 2018 update, there is both good and bad news for the restaurant owners. Let’s get the good news first. The good news is food prices are rising at a rate less than the general rise in prices in the economy. The food prices are showing the rise of +1.7 percent from Jan.2017 while the prices in the economy, in general, are rising at +2.1 percent from Jan.2017.

As per USD, food prices in 2018 will be less as compared to 2015 because of the fluctuating and decreasing food price trend in recent past years. Here comes the bad news. Despite the fact that food prices are rising at “slower rate,” they are somehow actually rising. The pressure comes from food-service vendors and grocers to keep the prices affordable while earning enough profit to grow the business. To maintain this balance may get difficult for them in 2018.

Effect of Rising Prices on Restaurants:

Food stores and grocers still will face little pressure of rising food prices in 2018 as compared to restaurant owners. Restaurant proprietor has to bear extra costs in the form of labor wages and labor-related costs. Not only labor cost, but there are also other factors affecting restaurants due to this rise.

For instance, due to 2017’s hurricane, the supply of coastal foods and oil from the affected areas were limited. Low supply resulted in high price from food distributors. All such factors together affect the final price of the “menu.” Grocers are exploiting this situation by adopting the strategy of decreasing their rate of price increase to encourage customers for food shopping rather than eating out at restaurants. This strategy can put restaurants behind.  However, food and labor costs in a restaurant are the variable costs. A restaurant can easily control these costs to earn a profit by concentrating more on inventory management.

How to Manage Restaurant with Rising Food Prices:

Following ways can be a great help to cope up with food cost challenges and earn revenue.

1: Calculate Recipe-Level Food Cost:

Updating menu prices once a year cannot help to manage the costs of your dishes. It is important to calculate food cost at recipe level.

2: Theoretical V/s Actual Usage:

Are the theoretical food costs same as the actual usage in your restaurant? The answer cannot be in “yes” in most cases. It is assumed by the restaurant owners that they are same. But in reality, they are not. Wastes do happen with food in the form of over or under portioning, theft of food, etc. Your restaurant’s inventory software should be capable enough to evaluate invoices from vendors. The software would compare theoretical usage v/s what your actual usage is. This would help in eliminating extra food costs.

3: Work on the “Menu”:

Menu creation is a matter of extreme importance. Menu engineering helps in categorizing the profitable dishes v/s less profitable dishes. Food costs do not change uniformly on all food items with the rising prices. Thus, it is now wise to uniformly change the menu pricing consequently. You can face the challenge of rising food prices by selling your profitable dishes more than non-profitable ones. It will ensure the constant revenue. You must evaluate your menu on a regular basis to adjust menu items according to the season and to keep their prices optimized.