Dirk Ahlbeck, CPA | National Restaurant Practice Lead
According to a survey from Seated and published in Restaurant Dive, more than 66% of independent restaurants (located in New York, Dallas, Boston, and Atlanta) are experiencing declining sales from inflation. The impacts of inflation are occurring in all industries for consumers – paying more for goods and services can often result in cutting extra spending, which could mean holding back on dining out in restaurants and bars.
Another method for combating inflation among consumers is trading sit-down dining for fast, casual meals or opting for cooking at home more often. Consumers may select cheaper items off the menu and avoid extra costs such as alcohol sales or desserts when dining out.
But consumers aren’t the only ones feeling the pain points of inflation; restaurants are increasing menu prices to help offset costs.
Raising prices may seem like a solid action plan to maintain the restaurant’s bottom line; however, these six additional strategies can help offset the industry’s thin margins, especially during inflation.
- Offer more discounts and promotions.
Who doesn’t love a sale? What better way to lure diners, especially those who have adjusted their budgets, than a two-for-one meal deal. Or perhaps a free appetizer with the purchase of an entrée. Buyers love the feeling of a good deal, and it may be just the motivation they need to get out of the house for a night out.
- Reduce operating hours.
Limiting your restaurant’s hours to combat inflation helps cut back on operating and staffing costs. Consider trimming available hours either first or end of the day to condense traffic flow to your most popular hours.
- Reduce staff.
While this recommendation may not be favorable, it may be necessary for the restaurant’s bottom line. Consider evaluating poor performers and determining whether the risk of reducing their hours entirely or temporarily benefits the overall financial health of the restaurant, including associated risks with staff morale.
- Remove lower-margin menu items.
Now’s the time to pause or stop altogether low-margin menu items, which will save on production and supply costs. Understanding your menu’s offerings to the restaurant’s margins is key to knowing which things to ultimately cut – owners should be routinely analyzing sales according to the menu to classify which plates can be easily cut. This category is historically known as “dogs” – low profit, low popularity – dishes that aren’t ordered often and cost a lot of money to prepare.
- Simplify the menu.
Menu strategies and management are a hot topic for all restaurant owners, and considerable thought and time should be placed in ensuring the eatery’s menu is primed for margins during the recession. Slimming down a menu has several benefits, including catering to the average customer’s attention span of only 109 seconds studying a menu. Offering a longer, detailed menu not only may not be viewed by customers, but also often results in food waste due to a lack of plate orders. Engineering your eatery’s menu can best capitalize on your most popular and profitable dishes while managing supply and labor costs.
- Create loyalty programs
The psychological benefits of sales and promotions can also carry over into a customer loyalty program, where frequent diners are rewarded for going out to eat. An actual win-win scenario – customers receive an incentive (for example a free appetizer, drink, or discount) to leave the house and go out to eat. The restaurant gets ongoing traffic through loyalty program members. Loyalty programs are easy to design and implement and can often utilize existing resources within the restaurant (i.e., POS equipment or reservation systems). Customers can be rewarded for frequent visits, special events, or birthdays and holidays, creating a sense of excitement, exclusivity, and inclusion throughout the dining experience.
Understanding your restaurants’ margins is key to making critical decisions for navigating inflation. For example, do you know which menu items are your most profitable? Do you know what hours you historically have the most reservations? Understanding a complete view of your restaurants’ financial and operational performance enables owners to make the best decisions for their bottom line. Let’s start the conversation today – contact me directly to schedule an introduction meeting to learn about your restaurant and how I can help you grow.