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A great way to combat food prices rising is to start selling more of your most profitable dishes.

How Will Rising Food Prices in 2018 Affect Your Restaurant?

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Creating the perfect menu is a mix of art and science.
By Derek Stangle May 2018 Expert Insights

The sea level is rising and so are food prices in America.

According to The National Restaurant Association, the 1 million-plus restaurants in The United States generated roughly $799 billion in sales last year, generating industry wide anticipation for yet another strong year in 2018.

Unfortunately, the New Year brought with it substantial financial changes to the restaurant landscape, like the nationwide minimum wage hikes have made labor costs untenable for restaurant owners who have been forced to lay off valuable staff members as a result. The buck doesn’t stop there—according to The United States Department of Agriculture’s 2018 update, food prices are slowly, but surely, rising.

On the upside, The USDA found that because of fluctuating and occasionally decreasing food prices in recent years, the food prices we can expect to see in 2018 may overall be less than those recorded in 2015. Don’t go celebrating just yet: Though perhaps less so than in previous years, food prices are still rising and affecting a multitude of industries, including the restaurant, hospitality, and grocery sectors.

How Will Rising Food Prices Shape 2018 For Restaurants?

Unlike grocers and food stores, restaurants have more costs to manage—mostly around labor. Those of us in the restaurant industry are aware of the drastic impact the 2018 restaurant minimum wage increase has had on kitchens across the country, coupled with the terribly high costs from restaurant turnover, but there are also non-labor related issues affecting the rising prices of restaurant food.

For example: the lower supply of (and steady demand for) coastal foods and oil from states impacted by 2017's hurricanes have resulted in higher price tags from food distributors.

These factors all contribute to the final price that restaurants put on their menu. According to The USDA, grocers have actually decreased their rate of price increase to keep consumers food shopping instead of eating out.

"Food-at-home prices and [restaurant] prices have recently diverged. Restaurant prices have been rising consistently month-over-month. Prices at food-at-home outlets have posted lower year-over-year price increases."

The USDA also found that this year's retail food price growth rate would fall "between 0.5 and 1.5 percent, which is still below the historical average of 2.1 percent."

With all the significant costs that go into restaurant management, food costs and labor continue to be the biggest variables each year. Controlling these rising costs will be much more simple if your restaurant takes control of its inventory management.

Managing a Restaurant With Food Prices Rising

Does your restaurant have a plan in place for monitoring and managing rising food costs? Many articles have been published on different ways to fight rising food costs, but today I wanted to focus on the three ways a robust inventory system and attention-to-detail can help turn your food cost challenges into a growing revenue center for your restaurant.

Calculate Food Costs at the Recipe Level

Customers demand a consistent quality and taste from your dishes, and expect a certain price range to go along with that dish.

As a restaurant owner or GM, you might update menu pricing once a year, but that doesn’t mean your food prices will only change once a year. In order to actively manage the costs of your dishes, it's critical to monitor food costs at the recipe level, and right now, we see food prices rising.  

A good inventory system will enable you to add recipes and match those ingredients back to specific vendors. Using recipe-level food costs allows managers to effectively evaluate food vendors, assess portion control, make informed pricing decisions, and provide insights needed to manage a high-performing menu.

Beginner's Tip: If monitoring food costs for your restaurant is a new practice, start off by tracking your top 20 menu items. Monitoring the food costs of these 20 recipes will ensure that you are taking the necessary steps to boost profits even if food prices are rising.

Tracking Theoretical vs Actual Usage

A common misconception is that theoretical food costs are equal to actual usage in the restaurant.

In reality, most restaurants experience waste in multiple forms. To name a few, waste could come from over or under portioning, dishes being sent back to the kitchen, or theft. Waste doesn’t just happen with food (which is why bar inventory management is also a critical function needed to effectively manage costs).

Your restaurant's inventory software should be able to track invoices from your vendors. This produces theoretical usage and matches that up to what your restaurant is actually selling.
Menu Engineering

Creating the perfect menu is a mix of art and science. The beauty of menu engineering is that it helps to break down the numbers behind your menu, identifying the dishes that are profitable and those that are not. When talking about rising food costs, it's not uniform changes that we see across food items, and likewise it is best not to make uniform changes with your menu pricing.

The easiest way to perform menu engineering is to have inventory tracking integrated with your point of sale. Identify an integrated inventory software that helps you to actively evaluate menu winners and losers. A great way to combat food prices rising is to start selling more of your most profitable dishes.

By consistently evaluating your menu, you can ensure you are adjusting menu items appropriately with each season and that your pricing is optimized based on the food prices of menu groups and items.

Scouts’ Motto: Always Be Prepared

Markets fluctuate and so will food prices each year, it’s just how the game goes.

While we can predict and anticipate changes, the only way to effectively manage rising food costs as they happen is to stay on top of the latest trends and reporting, including your own inventory.  Actively managing your restaurant’s inventory will ensure that food prices rising do not take you by surprise.

Derek Stangle is the Director of Product Marketing at Toast, where he leads our product and customer marketing efforts