According to the National Restaurant Association’s annual Forecast, overall wholesale food price inflation – which can have significant impact on a restaurant’s bottom line – will slow a little this year. Good news indeed, as it would be difficult to endure another year like 2011, when it rose 8%, the highest rate in 30 years. But the 4% projected increase is still high compared to historical performance, and operators will have to employ strategies to ensure that pretax profit margins remain intact – including a potential increase in menu prices.
“This year the Association is projecting menu price inflation across the industry of 2.7%, up a little from 2.3% in 2011,” reports Hudson Riehle, senior vp, research & knowledge group, the National Restaurant Association. “Last year, the overall national inflation rate was 3.2%, and grocery store inflation was even higher – it was 4.8% – a trend which is expected to continue this year, although not at the rates of prior years.” This gap between the inflation on menus and in the grocery store is particularly helpful to restaurant operators. “Compared to a few years ago, consumers are more conscious of their increased grocery store expenditures, so they aren’t quite as surprised or taken aback when it comes to menu price inflation.”
But consumers remain value conscious. “Consumers are willing to pay for the value- add in the restaurant experience compared to the grocery store,” he continues. “But it does put increased pressure on operators to deliver the best value for the price point and to communicate their value proposition – including service, decor, and a host of other attributes.” Hudson underscores that this environment doesn’t mean consumers won’t pay for quality in restaurants but rather that “consumers are more deliberative about where they spend their dollars, and they probably have a pretty well-conceived idea of the price they want the check to be.” To that end, Hudson counsels operators to massage the menu mix, take measures to promote more profitable items whose costs may not have risen as much, and to provide options – prix fixe, various portion sizes, etc. – to help consumers manage their checks. “The idea of one-size-fits-all pricing is generally no longer viable in today’s environment.
“Menu prices ebb and flow and it boils down to the perceived value. Do customers come away with a sense of ‘yes, that was a good experience for the price point?’ That’s the question.” (Source: National Restaurant Association)