Rising food prices are putting immense pressure on restaurants, especially as the potential for increased tariffs on imported goods into the U.S. from Canada, Mexico, and China continues to impact the industry. With the US trade group representing restaurants estimating the levies could cost the industry more than $12 billion, price hikes on key ingredients can be the difference between staying afloat and being squeezed out of business for many restaurants already operating on razor-thin margins. Essential menu items such as meat, seafood, dairy, and fresh produce are feeling the brunt of these tariffs and disruptions, and the outlook is uncertain at best.

So how will this affect restaurant owners? Let’s look at an example … The potential 25 percent tariff on all Mexican goods would mean a 25 percent increase in the price of avocados, 90 percent of which are imported from Mexico. With this, Mexican restaurants will significantly increase their spending on the majority of their most popular menu items—guacamole, tacos, burritos, nachos … you name it. This is just one example of how a single ingredient can have drastic effects on a restaurant’s P&L.

With this, restaurants will be forced to make tough decisions: Should they raise menu prices and risk alienating customers? Or should they absorb the increased costs and risk sacrificing profitability? For many restaurant owners, the answer isn’t clear-cut.

The pressure of rising food costs is even more pronounced for independent and smaller restaurants. In the last four years, food costs for the average restaurant have gone up 29 percent. With food typically constituting about a third of overall costs, these operators will see the effects of these tariffs quickly stretch their narrow margins. To navigate these increasing costs, raising menu prices is often no longer an option, as average menu prices have already increased a whopping 27.2 percent between February 2020 and June 2024.

With this, many operators are turning to AI to help mitigate rising labor and food costs. In fact, 89 percent of restaurant operators feel positive about the use of AI in their restaurants, according to a survey of over 600 independent full-service restaurants by Touch Bistro and Maru/Matchbox. With today’s AI, restaurant operators can better manage their back-of-house, track changes in customer food preferences, analyze pricing trends in real time, and foresee supply chain disruptions, making it easier to adjust quickly and keep costs in check. As AI technology becomes more affordable and accessible, independent restaurants can benefit from using data to streamline operations, make informed decisions, and ultimately protect their bottom line.

When it comes to mitigating food price hikes, kitchen task management tools home in on food cost-cutting measures like adjusting prep portions, ensuring accurate portion sizes, and improving ingredient purchasing decisions. Automation of daily ingredient prep management is a prime example of how operators can combat the risks of tariffs directly. With prep automation, AI can analyze previous sales data, weather forecasts, traffic, and events to understand how much of each ingredient needs to be prepped that day. By avoiding overproduction with these precise demand predictions, restaurants can eliminate overproduction, reduce waste, and avoid expensive last-minute ingredient purchases, which are common when food prices surge.

So, how does kitchen task automation impact a restaurant’s profit and loss? For example, if food costs increase by 25 percent a restaurant with a food cost of 33 percent would see it rise to 41%. But with an automated prep tool that can cut food costs by up to 5 percent, the increase would only be 3 percent, from 33 percent to 36 percent, instead of an 8 percent jump. Thus, prep automation helps operators minimize the financial hit from rising food prices, protecting their margins.

Beyond demand forecasting and prep automation, AI can also assist with better inventory management, smart menu optimization, pricing and purchasing analysis, and more. With inventory management, AI tracks inventory in real time and alerts operators when stock is low or about to expire, which enables more efficient purchasing decisions. AI can analyze which menu items are the most frequently ordered and then adjust the menu to focus on these high-performing items to reduce waste from less popular dishes that might have higher spoilage rates. Finally, AI can help restaurants track supplier pricing trends, making it easier to switch to more affordable suppliers when prices increase or supply chains are disrupted.

According to Popmenu’s 2024 study of 362 U.S. restaurant operators, 65 percent of them say the use of AI is increasing their margins and profitability. So while restaurant operators are having to navigate a complex landscape of rising food costs, tariffs, and supply chain disruptions, there is hope that, with AI, they can stay ahead of these challenges. As AI continues to evolve in the restaurant industry, smarter decision-making and more resilient business models will become the new standard. AI is the solution restaurants need to stay competitive and profitable in this unpredictable world.

Ingo Stork is the founder and CEO of PreciTaste, an AI-powered kitchen management platform that optimizes operational efficiency by automating essential kitchen tasks. With a Doctor of Science in Machine Learning from the Technical University of Munich (TUM), research experience at MIT, and over 40 global patents, Stork is a leading innovator at the intersection of AI and the restaurant industry. His visionary work in demand forecasting and real-time task automation has set a new standard, cutting labor and food costs while eliminating half of the food waste in restaurants implementing PreciTaste solutions.

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