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The Top Strategies for Restaurateurs to Combat Ongoing Impacts of Inflation

As costs go up for restaurant operators, it’s becoming increasingly challenging to maintain customer satisfaction and profit margins at the same time. Here are some strategies for achieving both.

By Erica InmanStaff Writer
SPONSOREDUpdated 10:10AM 04/09/24

Consumers are fatigued with price increases in restaurants, but they're unfortunately necessary if restaurant operators want to maintain profit margins through inflation. How can restaurateurs combat the ongoing impacts of inflation while retaining high levels of customer satisfaction and loyalty at the same time? 

CapitalSpring is a private investment firm that specializes in the restaurant industry.  1851 Franchise spoke with Erik Herrmann, partner and head of investment group at CapitalSpring, about strategies that restaurant operators can use to survive and thrive in the difficult economic climate. 

Increase Value Without Touching Price

Consumers want to feel like they’re getting a good deal. That becomes harder to deliver as a restaurant operator when costs are increasing on the backend. Herrmann’s advice? Try to add value in ways that don’t require you to directly touch prices for consumers. One way to deliver value that is separate from the prices on the menu is to ensure your atmosphere and the consumer experience are top notch. 

“The experience that people are having in your units should be special. In a full service environment, think of ways you can deliver excellent service and a great experience. But even in a limited service model, there are ways to differentiate, whether through manager table touches or team member friendliness at the register. Look for a way to stand out,” said Herrmann. 

Ignoring pricing completely is not always viable, however. Herrmann advises using pricing strategies to increase the number of new guests or the frequency of existing ones.

“On the pricing side, you can always offer discounts as a way to encourage incremental traffic, but you have to be careful with that,” he said. “The last thing you want to do is discount the person that was going to come anyway. If you're going to go the discounting route, you need a strategy that is hopefully going to bring in guests that otherwise weren't going to come, that is going to increase the frequency of visits among people that are already coming, or that will get those people to spend more. Pricing strategy should focus on incrementality and/or check building.”

Herrmann also suggests that if you can’t take the price down on certain products, try offering more value in terms of abundance. 

“You can create bundle deals on multiple menu items or offer abundance with larger, lower food cost entrees, allowing for greater value but maintaining the price point,” he said.  

Speaking of abundance, increasing your abundance of customers is another great way to combat the effects of increased costs and inflation. 

Give Customers a Reason To Visit

There are a variety of ways to encourage guests to visit your restaurant, but the age-old technique of limited time offers still remains one of the most effective methods.

“Give people a reason to come,” said Herrmann. “Develop an interesting, limited time offer or menu item that is unique that you can't get elsewhere. This will generate traffic and if you're pulling people in with an interesting LTO, oftentimes, they're going to buy other things, too.” 

By making a visit to your restaurant more unique or appealing, you’re offering value to your consumer regardless of price, through a special experience. That being said, price increases over time in the restaurant industry are inevitable. While you can mitigate these increases to some extent with the methods mentioned above, you can’t avoid them completely.

How to Communicate Price Increases Without Drawing Backlash

Consumers have learned to expect price increases in our current economy, but even so, they‘re starting to feel fatigued with the rapid jump in prices. So how do you communicate an increase in your prices without upsetting your loyal fan base? Herrmann suggests you don’t. 

“You have to be careful about how you communicate it,” he said. I think we tend not to want to communicate it because you're drawing attention to it. You're probably best off not talking about it, but doing it in a very thoughtful and measured way.” 

Consumers don’t expect your prices to defy inflation; they just hope to see as little increase as possible. Only increase prices where necessary to retain your margins. Look for innovative ways of reducing costs, doing all you can to keep your prices appealing to the customer. This builds consumers’ trust. If you’ve done that, you’re less likely to face backlash because that’s simply the reality of our economy and that’s as fair as you can be. 

Some other methods you can use to alleviate necessary price increases include searching for competitive substitutes and selecting which prices to increase strategically. 

“Identify the closest substitutes that are available in the immediate area, and try to look for opportunities to surgically adjust prices across the menu but be careful to maintain value against your competitors,” said Herrmann. 

Technology Provides Long-Term Solutions

While there are many strategies you can use to combat the ongoing impacts of inflation in the here and now, there are better solutions you can implement to set your restaurant up for long-term success.

“Longer term, the real opportunity is in leveraging technology to drive more efficiencies,” said Herrmann. 

As technology advances, it provides more and more opportunities for cutting costs, which can allow restaurant operators to keep their prices lower for the customers. 

“If we can find efficiency elsewhere, whether that's voice AI at the drive-thru or through ordering kiosks, that can help to mitigate the costs, which is definitely a positive from consumers in the long run.”

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