Navigating Rising Costs: Strategies for Survival and Success

For a detailed analysis of the cost pressures facing restaurants today, read our companion piece: "How Successful Restaurants Are Navigating Rising Costs"

Hidden costs lurk everywhere in the restaurant business. To understand how successful restaurants are adapting, we spoke with owners and operators across the country. 

Michael Ungaro, CEO of San Pedro Fish Market, a fourth-generation restaurant with three locations in Long Beach, California, has started working directly with suppliers. Shaz Khan has streamlined operations across his seven Tono Pizzeria + Cheesesteaks locations in Minneapolis-St. Paul. Charlie Eblen, founder of Single Tree BBQ in Murfreesboro, Tennessee, is focusing on menu rotation and quality maintenance despite rising meat costs. And Robbie Soskin, whose decades of restaurant experience spans multiple concepts, is rethinking service models and technology integration.

Their strategies are working. Recent data shows 63% of restaurant operators who manage finances reported increased profits in 2024 compared to last year.2 While the USDA projects some relief with slower price increases in 2025, these operators aren't waiting for market conditions to improve. Instead, they're developing practical approaches to protect their margins while maintaining quality and service.

Key takeaways:

• Menu Innovation: Successful restaurants are reimagining their menus through strategic price adjustments, rotation strategies, and thoughtful simplification, allowing them to maintain profitability without alienating customers

• Operational Excellence: Leaders are achieving efficiency through improved purchasing strategies, sophisticated inventory management, and optimized labor scheduling, often supported by technology

• Technology Integration: From ordering systems to analytics, restaurants are leveraging technology to streamline operations while maintaining the personal touch that defines hospitality

• Market Adaptation: Successful operations are embracing evolving consumer preferences, particularly in delivery and takeout, while developing new revenue streams

• Strategic Communication: Top performers are finding ways to maintain value propositions and customer loyalty through transparent communication and thoughtful pricing strategies

Menu Engineering and Pricing Strategies

The Art of the Subtle Price Hike

Increasing menu prices is often a necessary step in responding to rising costs. However, the approach to these increases can vary significantly among restaurants.

Charlie Eblen represents the direct approach: "Yeah, we took a price increase in January."

This straightforward strategy can be effective, especially when accompanied by clear communication about the reasons behind the increase. However, many restaurants opt for more nuanced approaches, such as selectively adjusting prices on specific items or introducing new, higher-priced options while maintaining the cost of customer favorites.

Menu rotation provides another avenue for strategic price management. Eblen explained:

"So entrees will add a new item, you know, we'll keep a bunch of things on it. If there's seven items on an entree portion of the menu, two may rotate every six weeks."

This rotation strategy allows restaurants to adjust pricing more subtly, under the guise of menu innovation. It also keeps the offering fresh for customers, potentially increasing repeat visits and overall satisfaction.

Regardless of the method, the key to successful price adjustments lies in maintaining or enhancing the perception of value. This might involve improving quality, presentation, or portion sizes to justify the increased cost to customers. It's a delicate balance between covering rising expenses and ensuring customers still feel they're getting their money's worth.

Menu Mix Optimization

Many restaurants don’t want to raise prices – according to recent Toast data, fewer restaurant respondents said that they raised prices this year compared to last year. Beyond individual item pricing, successful restaurants are taking a holistic view of their menu composition. This approach, known as menu mix optimization, involves carefully balancing high-margin items with popular, lower-margin dishes to achieve overall profitability.

Michael Ungaro emphasizes the importance of this strategy:

"I think that this is becoming a lost art – menu mix and really having a very balanced menu will really take away from those cost increases."

This balanced approach requires a deep understanding of food costs, customer preferences, and profit margins for each menu item. It's a continual process of adjustment and refinement based on sales data and customer feedback.

San Pedro Fish Market takes this concept further with creative cost management. 

"We knew that there was something that we couldn't get away from, but we couldn't change the dynamic of our most popular dish,” Ungaro shared. “So what we did was we took the next ingredient, which was also a high volume ingredient, and we were able to offset the one increase with a decrease of the other."

Ungaro's is approaching the menu as an interconnected system rather than a collection of individual items. By strategically adjusting the costs of related ingredients, restaurants can navigate price increases while maintaining the overall appeal and profitability of their most popular dishes.

The Case for Menu Simplification

In a world where more often seems better, some restaurants are finding that when it comes to menus, less can be more. 

Menu simplification is becoming a trending topic in restaurant circles, and for good reason. It's not just about making decisions easier for indecisive diners – it's a strategic move that can have a significant impact on the bottom line.

"The truth is, if someone came in from the outside to say, 'you guys need to make more money,' probably the first thing they'd do is shrink our menu," said Soskin. 

Think about it – fewer menu items mean less inventory to manage, reduced food waste, and a kitchen that runs like a well-oiled machine. 

From a customer perspective, a well-crafted, streamlined menu can actually enhance the dining experience by reducing decision fatigue and allowing the restaurant to focus on executing each dish to perfection.

However, simplifying a menu is a nuanced process that requires a deep understanding of customer preferences, brand identity, and operational strengths. 

Successful menu simplification isn't about slashing options indiscriminately. It's a thoughtful process of curating a menu that tells your restaurant's story, satisfies your customers, and keeps your accountant happy. It's about making every item earn its place on the menu.

In an era where restaurants are being squeezed from all sides, a well-executed menu simplification strategy can be a game-changer. It's not just about doing more with less – it's about doing better with less.

Cost Management Techniques: Mastering the Art of Efficiency

Improved Purchasing Strategies

Innovative sourcing strategies are becoming a key differentiator in improving purchasing strategies. This can involve everything from bulk buying to developing direct relationships with suppliers.

"One of the things that we had done a few years ago is just go direct to the shrimp manufacturers and do contract pricing,” said Michael Ungaro. 

This direct-to-source strategy not only potentially reduces costs but also gives restaurants more control over quality and consistency. It's an approach that requires significant volume and long-term planning, but for larger operations, it can provide a crucial competitive advantage.

Many operators are also embracing data analytics in their purchasing strategies. By using software to track price trends, predict demand, and optimize orders, efficient inventory management can help improve the bottom line. 

The local food movement is another area where savvy restaurateurs are finding opportunities. By partnering with local farmers and producers, they're not only getting fresher ingredients but also creating a compelling narrative that resonates with customers. This approach can justify slightly higher menu prices while supporting local economies.

Inventory Management

In the high-stakes game of restaurant profitability, how you handle your stock can make or break your business faster than you can say "86 that."

When Ungaro went right to shrimp manufacturers, “[it] allowed us a lot of flexibility. It lowered the price and the deal we're able to work out allows them to store it and deliver it when we need it, rather than us taking storage and, and working out, like, where are we gonna store it?" 

This approach not only reduces direct food costs but also minimizes the need for storage space and reduces the risk of spoilage, further contributing to overall cost savings.

Technology is playing an increasingly important role in inventory management. The best inventory systems can track stock levels in real time, track patterns of missing value to identify waste, shrinkage, and theft, and even schedule recurring orders for when supplies run low.

Labor Efficiency

With labor costs on the rise, finding ways to maximize efficiency without compromising service quality has become a top priority for restaurant owners. Strategies in this area often focus on cross-training staff, optimizing scheduling, and leveraging technology to streamline operations.

Many restaurants are focusing on cross-training staff to increase flexibility and efficiency. A server who can also tend the bar or a line cook who can manage the host stand can be invaluable during peak times or when dealing with unexpected staff shortages. This approach not only helps manage labor costs but can also provide employees with more diverse skill sets and potential advancement opportunities.

When reflecting on his own labor costs, Eblen said: "You know, honestly the only reason it's that low is because I'm including myself in there.”

Technology is also playing a crucial role in improving labor efficiency. Scheduling tools can optimize staff levels for busy periods, while kitchen display systems can streamline communication between front and back of house, reducing errors and improving turnaround times.

Some restaurants are even rethinking their entire service model. Counter service during slow periods, self-order kiosks during rush hours, or hybrid models that flex between full service and quick service depending on the time of day are all strategies being employed to manage labor costs effectively.

The key to successful labor management lies in creating a culture where efficiency is seen not just as a cost-cutting measure, but as a way to improve the work environment and guest experience. When staff understand how their efficiency contributes to the restaurant's success – and potentially their own compensation – they're more likely to embrace these initiatives.

Adapting to Market Changes 

Embracing Technology

Technology is no longer just an add-on – it's becoming an integral part of operations. From online ordering systems to analytics, restaurants are leveraging tech to streamline processes and enhance the customer experience.

However, this shift comes with its own challenges, as Robbie Soskin notes:

"I wanna believe that hospitality will still make it come back. And people will figure out the balance between technology and hospitality."

This sentiment reflects a broader industry concern: how to leverage the benefits of technology without losing the personal touch that is at the heart of the hospitality industry. Successful restaurants are finding ways to use technology to enhance rather than replace human interactions, creating a hybrid model that combines efficiency with warmth.

Responding to Consumer Trends

Staying ahead of evolving consumer preferences is crucial for restaurant success. One of the most significant shifts in recent years has been the rise of delivery and takeout, accelerated by global events and changing work patterns.

Soskin explained, "I think delivery's here to stay. You know, even though we didn't do delivery for years and years. We've done it only the last year." 

This shift isn't just a temporary change; it's a fundamental transformation in how people interact with restaurants. Adapting to this trend isn't as simple as just offering delivery. Smart restaurateurs are rethinking their entire operations. They're creating separate prep areas for delivery orders, redesigning menus to include items that travel well, and investing in packaging that maintains food quality during transit. 

But delivery isn't the only trend shaping the culinary landscape. Plant-based options, health-conscious eating, and demand for locally sourced, sustainable ingredients are all influencing menu development and marketing strategies. Successful restaurants are those that can adapt to these trends while staying true to their core identity and values.

Adjusting Business Models

If recent years have taught us anything, it's that the ability to pivot quickly can be the difference between thriving and merely surviving in the restaurant industry. 

Successful pivots leverage a restaurant's existing strengths while exploring new territory. For example, fine dining establishments offering gourmet meal kits for home cooks, or neighborhood cafes transforming into mini grocery stores during challenging times. These adaptations aren't just about survival – they're about finding new opportunities in a changing market.

But pivoting isn't just about making dramatic changes in a crisis. It's about cultivating a mindset of constant evolution. Smart restaurant owners are always on the lookout for new opportunities, whether that's adding a food truck to reach new customers, partnering with local businesses for unique pop-up events, or even diversifying into catering and private chef services.

Maintaining Value Proposition

In the face of rising costs and necessary price increases, maintaining a strong value proposition is crucial for customer retention and attraction. This involves a delicate balance of quality, portion size, pricing, and perceived value.

Focus on quality and portion size

Many restaurants are finding that customers are willing to accept higher prices if they can see a corresponding increase in quality or portion size.

Soskin explained, "There's something like Szechuan salmon, for which we're actually gonna raise the price July 1st. It's a big deal. But to the guest, the perception is usually about the quality and size of the piece of salmon."

This strategy of visibly enhancing the product while increasing the price can help maintain customer satisfaction and justify the higher cost. It's an approach that requires careful consideration of food costs and customer preferences, but when executed well, it can strengthen customer loyalty even in the face of price increases.

Transparent communication with customers

When it comes to communicating changes to customers, opinions vary among restaurant owners. Some prefer direct communication about price increases and the reasons behind them, while others opt for a more subtle approach.

For others, they just wait to see what happens. "Well, I don't know that it's much of a communication,” said Shaz Khan. “I think it's just kind of a switch one day and a witness of impact."

This strategy relies on customers understanding and accepting the broader economic context of rising costs. However, in an age of increased consumer awareness and demand for transparency, many restaurants are finding success with more open communication about their decisions.

Balancing profitability with customer affordability

One of the most challenging aspects of restaurant management is balancing the need for profitability without pricing out loyal customers.

"We certainly don't want to continually price out a percentage of our customer base. We're very cognizant of the fact, the impact that it has on their pockets,” said Khan. 

This awareness drives many restaurants to explore creative solutions that allow them to cover rising costs without alienating their customer base. This might involve offering a range of price points, introducing new value-oriented menu items, or finding operational efficiencies that can offset cost increases without impacting the customer experience.

Industry outlook and challenges

As the restaurant industry navigates these changing tides, several key trends are shaping its future trajectory.

Adapting to the removal of surcharges and fees

The restaurant industry is constantly adapting to new regulations, and one area of particular concern is the treatment of surcharges and fees. These additional charges have been a way for some restaurants to offset rising costs without directly increasing menu prices. But they might be going away soon. 

As Soskin pointed out, "I know the math and I talk to friends who do it, then the reality is that's gonna go away in a lot of states. Minnesota has just passed a law that it's going away."

Regulatory changes could force restaurants to rethink their pricing strategies, potentially leading to more direct price increases or the need to find other ways to manage costs. It underscores the need for flexibility and the ability to quickly adapt to changing environments.

Navigating regional differences in regulations and costs

The restaurant industry is significantly impacted by local and regional regulations, which can vary widely across different areas. These variations can affect everything from minimum wage laws to health and safety requirements, creating a complex landscape for restaurant owners, especially those operating in multiple locations.

Soskin highlights the challenges posed by regional differences in regulations:

"The city of Minneapolis is a little bit like California, a little bit like Portland, you know? We like to believe we're progressive. We care about people. The reality is we've gone to the place where regulations are expensive in the restaurant business."

Restaurant owners need to be well-versed in local regulations and to factor these variations into their business strategies and expansion plans. What works in one market may not be feasible or profitable in another, requiring a nuanced approach to restaurant management across different regions.

Managing consumer expectations in a high-cost environment

As restaurants grapple with rising costs and the need to increase prices, managing consumer expectations becomes increasingly crucial. Customers are often aware of broader economic trends, but they may still resist higher menu prices, especially if they don't perceive a corresponding increase in value.

Looking to the future, Soskin offers this prediction:

"I think there will be a world in which people will start to value, you know, reliable hot food that travels, you know, priced properly."

Restaurants that can align their offerings with a potential shift in consumer priorities, with a greater emphasis on consistency, quality, and fair pricing, particularly in the realm of delivery and takeout,   may find themselves better positioned to weather economic obstacles and build customer loyalty.

Looking forward

Rising costs across the board – from ingredients to labor to operational expenses – are forcing restaurant owners to rethink every aspect of their business. Yet, amidst these challenges, the passion and creativity that draw people to the industry continue to drive innovation and resilience.

Successful restaurants are those that can strike a delicate balance: maintaining quality and value for customers while ensuring profitability in a high-cost environment. This requires a multifaceted approach, combining smart menu engineering, efficient operations, strategic use of technology, and a deep understanding of local market conditions and consumer preferences.

The story of the restaurant industry is, at its core, a human one – of passion, creativity, and the fundamental desire to bring people together over good food. As the industry navigates these challenges, it's this human element that will continue to drive its evolution and ensure its enduring place in our communities and cultures.

2023 Survey Methodology

2To help better understand the restaurant industry, Toast conducted a blind survey of 847 restaurant decision-makers operating less than 15 locations in the United States including both Toast and non-Toast customers from May 26, 2023 to June 20, 2023. Respondents include a mix of both full-service and quick-service restaurants. Respondents were not made aware that Toast was fielding the study. Panel providers granted incentives to restaurant respondents for participation. Using a standard margin of error calculation, at a confidence interval of 95%, the margin of error on average is +/- 3%.