Have a peek at any restaurant menu, or take a minute and walk through your local grocery store, and you’ll quickly realize you’re not alone in your thinking. Yes, food prices are skyrocketing. The past two years have brought the greatest inflation that many industries have seen in decades. In fact, away-from-home food purchases are up 3.9% compared to the pre-pandemic increase of 2.5%. So, what’s causing the intense inflation? We’ll take a look at the five main factors driving the hike in food prices and what operators can do about it.
Labor shortage
One of the primary causes of food price inflation is a majorly huge labor shortage. It seems like everywhere you look there’s a “help wanted” sign beckoning potential employees to apply. And while that’s good news if you're in the market, it’s an incredible pain point for most businesses today. The truth is, the foodservice industry has been hit especially hard by the shallow labor pool. One telling survey from the National Restaurant Association found that 75% of restaurants listed hiring and retaining staff as their number one issue right now. But it isn’t just the restaurant industry that's affected. The food industry as a whole is suffering. Food manufacturing plants, meatpacking facilities and farms are some of the operations facing an extreme labor crunch.
But how does that crunch drive higher prices? With limited staff, harvesting, manufacturing and shipping products are difficult. Some manufacturing plants have been forced to cut hours of operation or take entire food lines out of production. With less supply and increased demand, prices soar. In addition, the magnitude of jobs available means employees can be picky. And more often than not, it comes down to who’s offering the most dough. While a hefty check is nice for employees, the increased wages need to be paid somehow and are typically passed on to the consumer through a bump in product prices.
Supply chain disruption
A tilted supply and demand balance isn’t only happening with labor. Ever set up a domino maze? The interconnected supply chain within different industries is very similar. One falling tile causes a cascade of dominos to follow. For example, aluminum imported from Canada or China has waned. With less of this metal available, canned foods or foil tops aren't being made, and the production of baked beans, black beans, canned peaches and a host of other products is suddenly halted. Just like dominos, those shortages beget more shortages (sorry, no black bean burritos or peach pies on the menu), and the delicate supply chain feels the strain.
Transportation dilemma
That same strain is felt at the pump, with fuel costs at an all-time high. Trucking companies’ greatest expense is undoubtedly the diesel used to keep their vehicles on the road, and when that goes up, shipping and delivery prices follow. Additionally, transportation companies and food distribution businesses are stretched thin by a waning workforce. Fewer semis hauling product means higher-priced items coming to your loading dock.
Natural occurrences
The perfect storm of price-raising circumstances includes actual storms, droughts and heatwaves. Recent natural occurrences significantly impacted farming and the production of various types of produce. For example, apples didn’t fare well this past fall, and many orchards lost the vast majority of their crop. But the story doesn’t stop there. Fewer apples mean less apple juice, the main ingredient in those juice boxes every kid loves. Grocery shelves were bare, fast-casual kid’s meals relied on milk and schools scrambled to find any juice available for cafeteria breakfasts.
It’s apparent Mother Nature can wreak havoc on produce, limiting operations’ use of ingredients like tomatoes, lettuce and blueberries. It also means less harvested corn and soy. Not big on putting those products onto your menu? It’ll still affect your bottom line. Corn and soy are major ingredients in animal feed, and a boost in feed prices means a substantial hike in the cost of meat. On top of damaged crops, forest fires boosted the price of wood that pushed food pallet prices through the roof. And hurricanes shut down sweetener refineries in the South. Less of the tasty ingredient jacked up the price of other sweeteners on the market. And true to form, an increase in one area ripples throughout the entire food supply system, often ending with customers paying out the difference.
High food demand
In the early days of the pandemic, consumers went on panic-shopping raids. The result was empty shelves and food rations. Thankfully, most stockpiling has calmed, but consumer purchasing habits have changed for good. Online shopping, limited store trips and more at-home meals have resulted in a greater demand for food at grocers’ registers. And higher grocery needs, coupled with a finite amount of food throughout the supply chain, create an increase in foodservice prices.
What to do about it all?
There might be a lot in inflation’s corner recently, but operators still have some tricks up their sleeves. First, consider evaluating what your operation is currently doing. Assess what’s working well and what isn’t. Be open to change and innovation.
Waste not, want not
Start by taking a look at the accumulated food waste from the back of the house. Are products cooked to perfection the first time, or are poorly prepared dishes sent back to the kitchen? Automated foodservice equipment with programmable preset cook times and temperatures is one way to help consistency stay on point and limit the amount of food that ends up in the trash. In addition, food warmers and coolers maintain optimal serving temperatures, keeping that fresh taste and texture customers love.
But it isn’t just the back of the house to consider. Often, customers don’t eat everything on their plate. Take the lead from the food packaging industry and serve reduced portion sizes. If your prices stay the same and the food you’re serving is delicious, you can still keep customers happy — while saving your bottom line.
Menu evaluation
Another way to protect your bottom line is by taking a deep dive into your menu. Look back on the data and determine what items are the most financially beneficial to your operation. Limit your offerings to the best performing dishes with the least expensive ingredients. Offer specials and limited-time dishes to help provide variety. Additionally, many operations are changing their menu and offering single entrees with sides as separate purchases. This gives more deciding power to the customer and limits needless and costly sides that customers might not want.
Price increase
Often, price increases are passed onto the customer (that’s why apples are $8.99 a bag). But you might want to adopt a more strategic approach to rolling out price boosts. If your operation is already evaluating the menu and changing it up, take that opportunity to raise the price of new menu items. Or, even just a name change, ingredient swap or more elaborate description of an existing dish can help. This way, consumers are intrigued by a new spin on an old dish — rather than focusing on the price.
Leverage digital data
With all the to-go orders out there, establishments have a gold mine of information. Take that data and use it for your marketing good. What dishes are selling? When is your busiest time of day? Or what promos are your customers responding to? These are the little nuggets of information that’ll help move your business forward, despite the extra costs you’re incurring. Also, try incorporating geofencing marketing tactics or other targeted campaigns to change one-time customers into dining regulars.
All the right moves.
Inflation isn’t fun for anyone, but with the right moves your operation can navigate through it with ease. In addition to the tips above, gaining more revenue is also a way to boost your bottom line. For more insight, take a look at our blog, Four Hidden Revenue Opportunities Foodservice Operators Should Explore.
