How to Fight Inflation and Protect Your Restaurant’s Profitability

The time when a restaurateur was primarily concerned with employee turnover, competition, inventory management, or managing against potential lawsuits seems like a bygone past. Today, inflation is putting significant pressure on restaurant owners, with rising food and labor costs, and even restaurant insurance eating into profit margins. According to the National Restaurant Association, wholesale food prices have increased by nearly 30% since February 2020, while consumer dining habits are shifting. In fact, over a third of Americans are dining out less in 2024 due to the rising costs of food and services. So, how can restaurant owners fight inflation, protect restaurant profitability, and not pass the burden onto their customers through higher menu prices?

The answer lies in adapting your operations, revising your strategy, and finding ways to manage costs more effectively. Here are several key strategies that can help you fight inflation and protect your restaurant’s profitability in the face of rising costs.

1. Revise Your Menu to Combat Inflation

Your menu is the heart of your restaurant’s operation and one of the most effective tools for fighting inflation. While you don’t want to scare away customers with steep price hikes, you can adjust your menu to manage food costs while offering value.

• Introduce budget-friendly options: Add value-oriented dishes that allow you to attract cost-conscious diners. For instance, offer smaller portions or affordable appetizers alongside your signature items. This way, you maintain variety without significantly raising prices.
• Optimize ingredient usage: Using ingredients across multiple menu items can help streamline operations and reduce food waste. For example, if you use a specific type of cheese in several dishes, you can lower your ingredient costs by minimizing inventory complexity.
• Streamline menu items: Look at sales data to identify low-performing dishes that might drain your resources. Eliminating these items and focusing on high-margin, popular dishes will help you control costs. To calculate food costs more efficiently, check out this guide.

Revamping your menu not only helps control inflationary pressures but can also boost your profitability. As you adjust your pricing, consider the impact of portion sizes and menu complexity on both customer experience and cost management.

2. Manage Labor Costs Effectively

Labor is one of the highest operating expenses for restaurants, often accounting for 25% to 35% of total costs. As wages rise and labor shortages continue, managing labor costs becomes even more critical in the fight against restaurant inflation.

• Optimize staffing levels: Use data from your point-of-sale (POS) system to understand customer traffic patterns and adjust staffing levels accordingly. Scheduling software like Restaurant365 can help you align staffing with peak and slow periods to avoid overstaffing.
• Track labor cost percentages: Keep an eye on your labor cost percentage to ensure you’re not overspending on wages. If your labor costs are too high, you may need to adjust schedules, eliminate underperforming shifts, or cross-train employees to be more efficient.
• Improve employee retention: The cost of hiring and training new employees can be a significant burden. By offering competitive wages and flexible working hours, you can retain your top talent and reduce the costs associated with turnover.

Balancing labor costs with excellent service is crucial for fighting inflation. By optimizing scheduling and investing in employee retention, you can keep your labor costs under control while maintaining a high standard of service.

3. Rethink Operating Hours

Another strategy to help fight inflation is by adjusting your restaurant’s hours of operation. If you’re not getting enough customer traffic during certain periods, it might make sense to cut back hours to reduce costs.

• Analyze slow periods: Look for patterns in customer traffic and sales data. If certain days or times show consistently low demand, consider reducing hours on those days. Many restaurants choose to close during afternoon lulls or on traditionally slower weekdays like Mondays and Tuesdays.
• Extend hours during peak times: Conversely, if you see demand for breakfast or late-night dining, consider adding those service hours to boost revenue without significantly increasing your costs.

By adapting your hours to match demand, you can improve profitability and reduce operating costs. This approach helps you allocate resources efficiently, which is vital in fighting inflation.

4. Explore New Revenue Streams

While controlling costs is important, you can also increase revenue by diversifying your offerings and appealing to a broader customer base. Here are some ideas to help you generate more income:

• Promote takeout and delivery: As customers continue to look for more affordable dining options, takeout and delivery services are more in demand. Streamlining your menu to be takeout-friendly can help you reach more customers. Consider promoting your delivery service and offering discounts for takeout orders to increase sales.
• Host events: Events like live music nights or themed dinners can create a buzz and draw larger crowds. These special occasions also provide you an opportunity to upsell unique dishes and drinks.
• Start a loyalty program: Reward your repeat customers with discounts or exclusive offers. Loyalty programs can encourage more frequent visits and increase overall sales, all while enhancing customer retention.

These revenue streams not only help in fighting inflation but also allow you to tap into new market segments and build a more loyal customer base.

5. Leverage Technology for Operational Efficiency

Embracing technology is one of the most effective ways to combat the rising costs of running a restaurant. New tools can help streamline processes, reduce waste, and improve customer satisfaction.

• Use advanced POS systems: Modern POS systems like Toast or Square provide in-depth analytics on sales trends, helping you make data-driven decisions to improve profitability and manage inflation-related challenges.
• Invest in inventory management: Technology such as inventory management software can help you track your stock, reduce waste, and optimize ordering. This ensures that you’re only purchasing what you need and keeping costs in check.
• Adopt reservation and ordering systems: Reservation platforms like OpenTable and ordering systems like Toast can improve the customer experience while reducing overhead. Online ordering options, in particular, make it easier for customers to engage with your restaurant and can increase revenue through delivery and takeout.

By using the right tools, you can enhance operational efficiency, cut unnecessary costs, and focus on growing your restaurant’s revenue.

The Bottom Line

Restaurant inflation may be challenging, but with the right strategies, you can manage costs and maintain profitability without raising menu prices excessively. From revising your menu and optimizing labor to exploring new revenue streams and embracing technology, there are multiple ways to fight inflation effectively. Adaptation is key—by staying flexible and proactive, your restaurant can thrive despite the financial pressures of inflation.