What Does Inflation Mean for Your Restaurant Business?
Inflation in the restaurant business feels like it could be the knockout punch after the one-two combination that started in 2020. First the restaurant industry was hit with business restrictions and then the Great Resignation and now inflation is affecting your bottom line. The good news is you can do something about it today.
What exactly is inflation anyway? Well, dictionary.com defines inflation as the general increase in prices and fall in the purchasing value of money. The gas station is a great example. The cost of gas is so high that people must start making decisions about how to spend their money so they can afford gas. They will also limit the use of their gas.
Gas costs go up on manufacturers, so they charge distributors more, and they pay more for their goods and their gas, and then you’re paying more for the products you need and there is only so much your customers are willing to pay for your food. At some point during inflation, the cost of the food and the experience of eating your restaurant’s food outpaces the value.
What is a restaurant owner to do? Well, here’s what I teach my members every day.
1. Create a budget.
That’s your proactive plan for success. That means everything on your budget is on the table for consideration. You do whatever it takes to get your prime cost to 55% or lower (total cost of goods sold + total labor cost). Your budget is your plan for how you’re going to make changes to overcome these challenges.
2. Attack your menu.
Attacking your menu means reducing the number of items that you’re selling to create efficiencies in the kitchen. This can be reducing prep so you can reduce the number of cooks you need on the line at one time. Adjusting your menu to lower labor cost is one way to fight inflationary pressure. Recipe costing cards are essential because you have to know what every item you sell costs you so that you know what you can sell it for. Then you can use your POS mix, what your customers purchase, your actual recipe costs, and what you sell it for and calculate out what your ideal food costs should be based on what your customers actually purchase. This also gives you the ability to reengineer your menu and reduce your food costs, often by 3–7 points if you’ve never done menu engineering in the first place. Knowing what the products you sell cost you also allows you to make changes that shift customers to other items that are more profitable.
No matter what, you have to be prepared to attack anything on your menu. I have members who have dropped top sellers on purpose because the labor to prep and make them is so high it outweighs the profits on other items.
3. Proactively budget for labor.
With a budget, you can tell what your labor costs should be by period, whether you’re in a 13-period accounting cycle or monthly. What is your labor cost for that individual period? And in doing so, I teach a system called the Restaurant Payroll Guardian, which tells your managers how many hours they have and how many dollars they have available to schedule next week on budget.
The idea of budgeting is to turn things around instead of being reactive. The most common way of managing labor that I see is to bring people in and cross your fingers that you’re busy enough to afford the hours. When you’re not busy enough, you send them home before it’s too late. I teach restaurant owners how to proactively schedule on budget knowing that you have a set number of hours in the kitchen and that’s it.
While this is certainly not an exhaustive list, these are the things I recommend my restaurant coaching group members, and I want you to do and start them today.