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Menu Inflation: How to entice customers back amid soaring food prices

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Earlier this summer, I went to Fat Pasha, a restaurant located in the Annex serving Middle-Eastern bubby food.  As we took our places on the patio, the server informed us we could view and order our food directly from the kitchen through an app called Ambassador, an online platform offering direct in-restaurant ordering and on-demand delivery across the US and Canada with zero commission or fees. It was a strategy the restaurant was testing in their recovery efforts, to help the hard-pressed staff and enable the restaurant to minimize food costs.

Food costs/menu inflation has consistently been one of the top three challenges restaurants are facing right now (the other two are the potential for further shutdowns and pandemic-induced debt). Food prices are rising, leaving restaurants — still struggling to recover from the economic impact of COVID-19 — with another post-pandemic business challenge.

Menu inflation is not something new. In fact, typically, menu inflation ranges between 2.5% and 3% annually and menu prices saw a 2–3% increase year over year up until 2020. However, the Dalhousie University Agri-Analytics Lab’s Canada’s Food Price Report (11th edition) forecasts an overall food price increase of 3-5% for 2021. The most significant increases are predicted for meat (4.5- 6.5%), bakery (3.5-5.5%), and vegetables (4.5-6.5%).

The explanation seems simple: higher food costs equals higher menu prices. But menu inflation is a complex issue driven by many underlying root causes which the restaurant industry has been dealing with for years, all heightened by a global pandemic. “The ongoing crisis has exacerbated an already difficult set of circumstances for food production and processing. Continuous supply chain disruptions, coupled with ongoing uncertainty and challenges to the flow of goods between provincial and international borders has made a less than ideal situation worse,” says Denise Allen, President & CEO of the Food Producers of Canada (FPC).

The closure of borders has directly impacted labour costs and created labour shortages, which also contributes to menu inflation. “We are an entry-level industry and we provide jobs for first-time workers and new Canadians,” says Donna Dooher, Owner and Executive Chef of Mildred’s Temple Kitchen. She uses last year’s apple harvest in the Okanagan Valley as an example. “There were tons and tons of apples that didn’t get picked and rotted on the ground because the demand wasn’t there and there was no one to pick the apples. Now that we’ve reopened we can’t just turn around and grow apples really fast.”  

The massive layoffs at the beginning of COVID-19 saw many servers move to different opportunities. “Working in a restaurant is not seen as a profession the way it is in Europe or other countries,” says Jo-Ann McArthur, President, Nourish Food Marketing. “Everyone is competing for a smaller pool of people who require some major enticement to go back.”

Also fuelling the food shortages is global warming. “Our food chain is being threatened by global warming.  We need to pay attention to the fact that the West is on fire and we have water shortages resulting in drought,” says Dooher. McArthur agrees. “Frankly there are all sorts of things happening with extreme weather right now. Frost just wiped out the coffee harvest in Brazil and that’s only one of many examples of how food costs are being driven up.” 

While many of the reasons food prices have increased are outside the control of the operators, how to manage the increases, and what ideas to implement to entice the customers back, are all within reach. “Customers are very price sensitive and when they recognize their favourite items on menus going up in price they may potentially reduce their spend or frequency of visits,” says Adam Brown, Partner & National Leader, Value Creation Services at the BDO. “The benefit of the time that we’re in right now is that there is a little more understanding and acceptance from consumers because everyone knows that COVID-19 cost increases are everywhere.” 

Dooher and her team anticipated this reaction from customers and took action early. “We started to make adjustments to our menu pricing before we even opened for sit-down dining. We thought we would be better served to take more of an incremental approach to the costs on our menu.” Understanding your menu and what customers want is vital. “It’s important to understand the food elasticity and demand elasticity of your menu items to develop an effective pricing strategy,” says Brown. “Identify those menu items that customers love and will continue to order. Take price increases on those items instead of on appetizers and desserts, where customers may be a little more price-sensitive.”

Operators can also rejig their menus and portion sizes to manage both menu inflation and food waste. “A lot of restaurants have too many choices… it’s important to really streamline your menus,” says McArthur. “Reimage your menu to allow for easier food preparation and utilize ingredients in a cost-effective way.” Menu engineering and menu formulation will also assist operators with food inventory management challenges.  

Where ingredients come from is also important. “There is a cross-country, post-pandemic push to reopen restaurants right now. Operators are busy restocking dry stores, frozen foods, fresh produce, seafood and meats. This is creating a surge of demand. The drive puts higher than average pressure on inventories, which affects pricing,” says Mathieu Pare, Executive Director, Canadian Beef Center of Excellence, Emerging Markets. So when you can, source locally. There is real value in sharing with customers where your ingredients come from and who produces them. “If you have local suppliers, really showcase them. Right now everybody wants to support their neighbours. So if customers are familiar with the people who grew the food in their meal,  they will understand they are not just supporting this restaurant but the whole supply chain — and be less opposed to higher menu prices,” says McArthur. Brown agrees:  “Arm your servers with the right talking points around the menu and gauge the customer’s reaction. Be as transparent as possible about why the prices on the menu are increasing.”

Another way to support operations is with technology. Pare is a huge supporter. “Restaurants owners and managers should explore technologies that customers have become familiar with during the pandemic. QR-code-reading smartphones can ease the transition: most of us have experienced menus moving to digital formats accessible online via smartphones.” There have also been considerable advances in web-based education and online learning in the foodservice industry. The Canadian Beef Center of Excellence has developed training videos to help chefs learn food preparation techniques that can be shared with the rest of the staff. “Product knowledge for staff and easy access to resources not only trains the kitchen and front of house team, but it also helps educate diners,” says Pare.

But by far, the best thing a restaurant can do to help offset any price sensitivity when welcoming customers back is to ensure their first post-COVID experience is unforgettable. Encourage your staff to use your menu as a storytelling tool. Focus on the positive, like the exciting new offerings and excellent service that guests will remember. “Hospitality and dining are about sharing, learning, and exploring new food tastes, textures and presentations and the ambiance created in a social setting,” says Pare.” It is about catching up with friends and family that we have not been within a long time. Tell customers how happy you are to see them, remind them about why they love going to restaurants, what they have missed and why they are happy to be back.”

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