Journey to the Next Normal: The Fate of Menu Pricing

    Rising food and labor costs can no longer be absorbed.

    Auntie Anne's, Jamba Drive-Thru Menu Board
    Focus Brands
    Are consumers expecting prices to increase?

    In part one of the “Journey to the Next Normal,” Kinetic12 looked at the short and long-term challenges associated with labor shortages. In part two, we looked at supply chain disruptions and the obstacles operators face to provide consistency to their customers.

    Regardless of the size of a brand or the segment they are part of, the cost of doing business has increased, and this is not a short-term problem.

    For starters, operators are now paying employees as much as $20 per hour to work in restaurants, and they have no choice unless they want to risk alienating customers with below-standard food and service. Because operators must now increase the pay of current employees, they have set a new mark for what employees will get paid for certain positions. And with the higher hourly rate, many employees are looking to work 30 hours per week—instead of 40—to keep their overall weekly pay low enough to still receive government benefits.

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    Supply Chain disruption also will not be an easy fix. The cost of food on many critical ingredients is higher than normal and this relates to supply and demand. To add to this challenge are wage increases for staff at manufacturing and warehouse facilities, farms, and even for truck drivers. Operators therefore must make difficult decisions as to whether they should raise prices or change their menus.

    There is nothing simple about this process, but if done with a lot of thought instead of emotion, you can arrive at a price point that is fair to the consumer and meets the financial needs of the operator.

    Restaurants must keep in mind that pricing can always come back down. In addition, making adjustments on productivity, and adding some more profitable menu items, while deleting some high-costs ones, can reduce the price increases needed.

    For the purpose of this article and based on feedback from our Kinetic12 Emergence restaurant operator council, here are 10 areas to review to help you make the right decision.

    Don’t Sacrifice Standards

    An easy approach to keeping menu pricing static when costs are rising is to reduce the quality of ingredients or trim the portion size. Neither of these options are, in any way, good for a brand’s long-term viability. The first thing an operator should do is fully understand what their customers are eating from each menu item, what they are taking home and what is not being consumed. For instance, an entrée may be served with a thaw-and-serve breadstick that costs 35 cents and 90 percent of the time it is being thrown away. How about making sheet pans of fresh cornbread and serving a piece of that with a 15-cent cost?

    Remove Some of the Old and Start Anew

    Many times, operators will over-value certain items that have been on the menu forever. It could be the menu item itself or possibly a breadbasket that has been served at every table for years. Lots of consumers are looking for more of a balanced plate with vegetables accounting for half of the plate. They also may not want sweet- and high-fat biscuits, garlic butter rolls, and pastries served with their meals. Just because something used to be popular, does not mean it still is. Focus on what customers are ordering and what is left on the plate or on the table.

    Continue to Provide Value

    Consumers have become accustomed to getting value wherever they eat. It may be price driven, but also quantity for the price, quality of food and service, overall experience, ability to customize, and more. There are certain menu items that cannot change. They are simply too popular and drive brand loyalty and frequency of visits. Do you raise the price to offset cost increases, or do you try to balance these high-cost menu items or combos with some new LTOs, “Blue Plate Specials,” or combos that would be appealing to the customer and cost-friendly to the operator? Not everything has increased in cost. Incorporate those ingredients into menu items to provide the balance that is needed.

    Don’t Take Away What You Have Been Given

    There are many extremely popular items on menus that simply are no longer profitable enough to stay on the menu as they are. Therefore, one of the solutions operators can take is to raise the price on some of these items, while also offering a smaller portion at a lower price. Operators may find that their customer loved the item but could never finish the meal. A smaller portion could be exactly what they want.

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    Pivot Operational Procedures

    Operators have rethought what their operational procedures should be since the beginning of COVID-19. Ample factors forced pivots to take place, including labor shortages, supply chain inconsistency, and eliminating emotion as the major impetus for producing certain items from total scratch. Total scratch can be quite costly, with significant skilled labor required as well as higher food cost due to poor yield. Speed scratch can eliminate steps and still allow for greater consistency at a lower cost. Speed scratch may appear to be costlier, but when you factor in waste and overall yield, it is not. Eliminating total scratch could have a bearing on eliminating menu price increases on many items.

    Be Creative with Different Cuts of Meat and Other Approaches

    There are great cuts of meat, different fish species and so much more to work with. They are extremely versatile and may be in plentiful supply. It was not that long ago that portabella mushrooms and kale were throwaways and now they are staples. There are multiple cuts of beef such as flap meat, flank steak, tri tip and skirt steak that can be used in so many ways and eat well. Do you really need to use cod or haddock in your fish and chips? There are many white fish varieties that could be used that would provide a comparable finished product. What about shrimp that is used in burritos, bowls and stir fry? Take a good look at 31/40 and 41/50 shrimp. They are almost the same size and you can use the same number of shrimp at a reduced cost per pound.

    Think About Your Customer

    Are consumers expecting prices to increase? The easy answer is that they are aware of labor shortages and the increased wage restaurants must pay, and they understand from going to the supermarket that some items have gone up in cost. But it does not mean that most consumers expect restaurant price increases as well. That is the reality of what operators must face. Restaurant operators now have to educate their customers on increases, have answers to their questions, and provide price-friendly alternatives.

    Tell the Story and Be Prepared to Respond

    The transition from the “New Normal” (COVID) to the “Next Normal” is unprecedented and anyone who believes we are heading back to the old way is in for a surprise. The “Next Normal” is going to be better for everyone, but it is still being formulated. Consumer behaviors have been the key cog in determining where restaurants are today and where they are going. Operators should be forthcoming with timelines dating back to early last year to where they are now, and their staff should be well educated and prepared to respond to their customers as it relates to price increases, menu changes, and other things that affect their experience. In addition, operators should listen to their customers to understand their expectations.

    Stay Focused on Productivity and Efficiency

    Despite dining rooms being full and off-premises business continuing at higher rates than pre-COVID, productivity and efficiency of the operator remain critical to the “Restaurant of the Future.” Quality productivity and efficiency reduces staffing levels, while providing the customer with a better experience. This also has a major impact on a smaller footprint in the future where less storage is needed, and simplification remains front and center.

    Drive More Revenue and Build on Off-Premises

    Revenue always cures inflated costs. If revenue is running higher, many fixed costs will be lower. This also will help with labor costs if additional staffing is not needed to drive more revenue. Flexibility is critical to added frequency of visits by the consumer and providing guests added opportunities and a voice in how a brad is molded will lead to greater loyalty.

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    Making the decision to raise menu prices isn’t an easy one. However, it is highly necessary that operators consider every option, especially when it comes to determining their own operational costs. By following some of the steps above, and asking themselves the right questions, operators can make clear decisions to move into the “Next Normal.”

    Bruce Reinstein and Tim Hand are partners with Kinetic12 Consulting, a Chicago-based Foodservice and general management consulting firm. The firm works with leading Foodservice suppliers, operators and organizations on customized strategic initiatives as well as guiding multiple collaborative forums and best practice projects.They also engage as key note speakers at operator franchise conference and supplier sales meetings.Their previous leadership roles in restaurant chain operations and at Foodservice manufacturers provide a balanced industry perspective.

    Contact us to talk or learn more about how we can help your organization understand the Restaurant of the Future and how Emerging & Growth Chains will define the future of Foodservice.  Kinetic12.com Bruce@Kinetic12.com or Tim@Kinetic12.com