How restaurants can boost profits amongst soaring inflation in 2022
By: Greg Staley,
CEO of SynergySuite
Food prices have risen 10.4% since last summer, and nearly every food item is now more expensive than it was last year. As inflation reaches its highest level since 1981, food costs are among the biggest price hikes. The increases are a result of multiple factors – including domino effects from COVID-19, supply chain disruptions, high energy prices, the climate crisis, and the ongoing Russia/Ukraine conflict – that are causing a “perfect storm” to drive up costs.
Now, restaurant operators must make every effort to cut costs and maximize profit margins. I recommend that operators:
- Be more intentional with their menus. Menu engineering, the study of the profitability and popularity of menu items, helps operators examine their menu items and historical sales patterns to determine which of their dishes drive the most sales and profits. Armed with that knowledge, restaurants can spotlight the items with the highest profit margins, promote less popular (but highly profitable) items, eliminate underperforming items, and replace costly ingredients with less expensive options.
- Examine actual versus theoretical food costs. Looking at actual versus theoretical food costs (AvT) considers the difference between what costs should have been in a specific period with what they actually were. There will likely be a variance due to inconsistent portion sizes, kitchen waste, employee theft, etc. It’s wise to track the difference between your actual versus theoretical food costs to determine financial “leaks” so you can rectify any problems to boost your profit margins.
- Use tech for more transparency. I can’t emphasize this enough: it’s significantly easier, quicker, and more accurate to use tech tools to manage food costs and profitability. Operators should use every digital solution at their disposal, especially now, as inflation continues to soar. Solutions like theoretical recipe tools, inventory management, etc., can help drive smarter business decisions about purchases, inventory, and even scheduling, to minimize food and labor costs and maximize productivity. In contrast, manual processes are time-consuming, inaccurate, and prone to errors. At a time when many restaurants remain under-staffed, increasing efficiency through technology is critical.
- Revamp your menu. Restaurant tech provides much-needed transparency about the best and worst sellers on your menu, allowing you to make data-based decisions about which items should be kept, replaced, or eliminated to reduce costs and boost profits. Digital tools can automate your food cost calculations, vendor pricing, plate costs, etc. so you can keep your best – and most profitable – items on the menu. Use menu psychology strategiesto spotlight certain items, implement strategic pricing (like $9.95 versus $10), and write compelling menu descriptions (e.g., delicious, creamy, luscious, fresh) to persuade guests to order. Push items that are high margin but low popularity. Substitute costly ingredients with less expensive options and track how the newly adjusted dish performs.
- Determine plate costs. Use digital tools to review your recipes, inventory, and prices to generate the final cost of each recipe. While recipe costing can technically be done using a spreadsheet or pen and paper, manual processes are inaccurate and difficult to maintain since prices are continuously fluctuating and recipes often evolve over time. It’s much more efficient and accurate to use a digital system that automatically updates ingredient costs and other factors for more precise calculations.
- Improve inefficiencies. Use the insights you’ve gathered via tech tools to identify – and improve – inefficiencies. First, determine areas of inefficiencies and money leaks. Is your staff over portioning? Is food waste a big problem? Could employee theft be a factor? Are you scheduling optimally? Are your ingredients too expensive to be profitable? Once you identify the problems, take steps to rectify them. Revisit portion sizes, encourage the kitchen staff to become more imaginative with leftovers, utilize all available ingredients, use tech tools to spot patterns that could be employee theft, and use scheduling software to ensure that you’re not over or under staffing for any given shift. Make it an ongoing effort to review reports and dashboards to identify (and correct) any inefficiencies that can be contributing to a money bleed.
- Be more mindful around inventory. Is your restaurant still relying on antiquated pen and paper or spreadsheet inventory management? If so, you’re likely wasting considerable time, money, and food. Instead, use digital tools to monitor inventory and successfully use the items on-hand before they spoil. In fact, one of the most effective ways to reduce food cost (and unnecessary spending) is to avoid purchasing items that you don’t need. Use historical and forecasted sales and inventory data to determine what to order (and what ingredients you have on hand) for smarter spending and waste reduction.
- Get accurate info for proper forecasting. The old adage “fail to prepare and prepare to fail” is very true. If you aren’t conducting regular forecasting efforts, based on historical data and sales patterns gleaned from digital tools, you can’t accurately predict upcoming trends. If you have a better sense of what’s ahead, you can make better decisions about proper quantities to order, prep, and cook. Forecasting also means you’ll make smarter scheduling decisions to ensure plenty of staff for busier shifts, and fewer employees working during anticipated slower times. This exercise can help you save significant money on both food and labor costs.
- Train employees. Is ongoing training a priority at your restaurant? In addition to educating staff about food safety, be sure to also train them about how to reduce waste (in terms of both food and money). Get the entire staff aligned in this effort and ensure they’re all working proactively to reduce food and financial waste. This means portioning correctly, utilizing first in/first out efforts, repurposing leftovers, ordering properly, conducting accurate inventory, optimizing staffing, eliminating theft, etc. Make waste reduction part of your corporate culture and emphasize that it’s a priority.
- Measure your efforts. Monitor your data to keep an eye on key metrics. Which dishes are selling well? Did your lower performing dishes become more popular after you promoted them? If you swapped lower-cost ingredients in certain dishes, did it impact sales? Continue to track your sales, profitability, and food costs and adjust your strategies, as needed.
It’s been a difficult few years in the restaurant industry, and we’re all working to recover. After facing a global pandemic and its associated repercussions, combined with a war, a climate crisis, and other issues, we’re now facing sky-high inflation. With soaring prices on many food items, we need to use every scrap more efficiently and effectively to control spending and maximize profits. These tips should help your restaurant accomplish this.
Greg Staley is the CEO of SynergySuite, a back-of-house restaurant management platform. Greg focuses on facilitating better visibility and increased profitability for restaurant chains through the use of intelligent, integrated back-of-house technology. For more information or to discuss SynergySuite’s solutions, please contact Greg at [email protected].
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