Let’s face it, it’s tough to run a small business, but it’s another thing entirely to run a small restaurant business. All business owners have to manage labor, inventory, and control the cost of goods sold, but few industries have as slim margins as restaurants. On top of that, restaurant operators are faced with constantly fluctuating and rising food costs. After managing and accounting for labor and food costs there’s often just enough to pay off direct costs and, if you’re lucky, a little profit to take away or to reinvest in the restaurant.
As the cost of ingredients used to create various menu items fluctuates and, unfortunately, increases, you have to control for the changes if you hope to sustain reasonable margins. If the only concern was maximizing margins, you could easily just increase menu pricing to combat above average food costs, but most industry experts agree that raising menu prices in response to food costs should be an absolute last resort. This conundrum is typical for restaurant owners. Fortunately, there are a number of tactics that you can use to combat rising food costs and effectively manage you menu without jacking up prices or sacrificing your bottom line.
1) Change your menu a few times a year
One way to respond to rising food costs is to change your restaurant's menu on a seasonal basis. If you change your menu a few times a year to introduce new dishes using seasonal ingredients, you can capitalize on the fact that seasonal foods are the highest quality and reasonably priced. As food costs rise and margins for certain menu items diminish, replace those dishes with novelty options that will both delight your guests and cost less to prepare.
2) Talk with a variety of food distributors
Most restaurants have primary and secondary food vendors. If an item is selling at a higher-than-usual cost, consider negotiating with your existing food providers or shopping around to see if other vendors are offering better rates. When food costs are high, it can be a great opportunity to discover deals from a new distributor who is eager to get a piece of your business. It can also be a chance to learn about other vendors’ pricing that you can use to negotiate more favorable prices with your regular food distributors.
3) Change products with your food distributor
Rather than barter with distributors over cost of ingredients for your regular menu items, consider purchasing new products and introducing a twist on existing dishes and drinks. For instance, you could try out a new cut of meat or change up the sides that typically accompany your regular steak dish. As the cost of steak and various produce rise, you can avoid altering your prices, shrinking the portion, or sacrificing margins.
4) Purchase in bulk
Purchasing ingredients in large volumes can help combat rising prices as buying in bulk usually means greater discounts. Look into buying expensive ingredients in larger amounts than you typically would (assuming you can 86 them before expiration). For instance, rather than buying 10 pounds of steak at once, try buying 50 pounds at a discounted rate.
5) Negotiate long-term prices
The USDA Economic Research Service (ERS) predicts that cost for beef, pork, eggs, dairy, poultry, and fresh fruits and vegetables will all increase in 2015. The cost of beef and veal, for example, rose 18.7% year over year from 2013 to 2014 and it is expected to increase an additional 5%-6% in 2015. Rather than scrambling to react to food costs once they have spiked, try to lock in long-term prices for food items that you're likely to use regularly when they are relatively low and unlikely to decrease significantly in the near future.
6) Upsell profitable dishes
There are a number of ways to upsell high margin dishes to account for dishes that are popular, but are also particularly costly to produce. A tactic known as menu engineering is one way to promote sales of specific menu items. Menu engineering is the practice of designing your menu in a way that directs guests’ attention to specific areas of the menu and strategically placing high-margin items there. Another option is to offer a specials menu and to train your staff to upsell those menu items at the table or counter. If you have a point of sale system that offers detailed sales reports, you can easily identify the dishes that are the biggest contributors to your bottom line.
7) Standardize recipes
Every dish on the menu should have a standardized recipe that the kitchen staff is expected to follow to a teaspoon. This practice will ensure that the cost of making each dish remains relatively uniform each time it is prepared. It will also help your restaurant reduce unnecessary food waste and better track and predict kitchen inventory.
Rising food costs are inevitable and never easy to manage. In the event that you do have to increase menu prices, make sure that you do so while also adding a new twist on the usual dish. A more elegant plating, an usual take on a classic dish, or a new concept can be enough for your guests to reconcile or entirely overlook the pricing increase. Most industry experts agree that increasing menu prices should be a last resort, but if you need to do so, make sure that you give your guests a reason to appreciate the higher costs rather than dispel them.