How Restaurants Handle Increased Costs

Eateries are thinking strategically about what goes on their menus.

April 04, 2022

Restaurant Checkout Screen

ALEXANDRIA, Va.—With food prices climbing 7.9% over last year, according to the Bureau of Labor Statistics’ Consumer Price Index, restaurants are getting creative with their menus to manage food and labor costs, reports CNBC.

Looking at sales data and food costs can help restaurant operations choose which menu items to emphasize, which prices they need to increase and then what items they can get rid of altogether to increase their bottom line.

“A smart menu design can highlight the food or drinks that will keep customers coming back or help with kitchen operations. A slightly larger font or an eye-grabbing box, sketch or photo can quickly translate into dollars,” reports CNBC.

Many restaurants are resorting to listing “market price,” instead of a fixed price to some menu items, such as seafood, and some are adding the option of smaller cuts of meat but including more sides and appetizers to round out the menu. Some menu items simply cost the restaurant money to offer them, like Shuckin’ Shacks’ crab balls, but the restaurant doesn’t want to pass all of the cost along to customers. Instead, it hopes the popular appetizer will attract customers to return and buy other menu items that are more profitable.

A slimmer menu is another tactic restaurants are implementing to cut costs. Olive Garden’s parent company Darden Restaurants started cutting dishes early in the pandemic and has continued this strategy.

“In terms of menu, we’ve been clear that we really like the reduction in menu and what it’s done to provide our guests with the high-value dishes that they want and make it easier for our teams to produce them,” Darden COO and incoming CEO Rick Cardenas told analysts in late March. “And we continue to get better. If we add new items, we take another item off.”

Food inflation is closely tied to same-store sales growth, Bank of America Securities analyst Sara Senatore wrote in a note to clients.

“Food prices increase immediately in grocery stores and lagging, smaller price increases in restaurants are less onerous by comparison,” Senatore said. “As a result, we believe that companies that price at inflation should be able to pass through cost increases effectively, while those that price below can gain traffic share.”

LTOs are also on the table, with Chipotle Chief Restaurant Officer Scott Boatwright said in a February interview that the chain is trying to think strategically about limited-time menu items.

“We are thinking about future limited-time offers and about margin impact, with an eye toward supply chain, specific to products that we know will see significant inflation and moving those LTOs to at least be on balance with margin or even margin accretive,” Boatwright said.

Fast casuals laid the foundation to survive and thrive during the pandemic. Though fast-casual visits were down during the peak of the 2020 lockdowns (-23% in the quarter ended June 2020), by year-to-date August 2021, they had risen 8%, and traffic was flat on a two-year basis.

What was their secret to surviving a global pandemic that caused many businesses to take big hits or close permanently? Fast casuals leaned in on the tools that were already part of their business model to effectively reach their customer—think digital ordering, loyalty, pickup and drive-thrus.

Learn how the foodservice category performed in c-stores in 2021 and get a look at what’s ahead in the foodservice category deep dive at the NACS State of the Industry Summit, April 12-14, at the Hyatt Regency O’Hare, Chicago. Matt High, senior made to order, category sales manager, Sheetz, will present key insights about the category’s performance in 2021 and share how Sheetz remains top of mind with customers. Register for the SOI Summit today.