Inflation in the restaurant sector seems to be the deathblow after the one-two combination that began in 2020. The restaurant sector was first hit by trade restrictions, then the Big resignation and now inflation affects your bottom line. The good news is that you can do something today.
What exactly is inflation? Well, Dictionary.com defines inflation as the general increase in prices and the decline in the purchase value of money. The gas station is a prime example. The cost of gas is so high that people have to start making decisions about how to spend their money to be able to afford gas. They will also limit the use of their gas.
Gas costs go up for manufacturers, so they charge distributors more, and they pay more for their products and their gas, and then you pay more for the products you need and your customers are only willing to pay for your food . At some point during inflation, the cost of food and the experience of eating your restaurant’s food exceeds the value.
What should a restaurant owner do? Well, here’s what I teach my members every day.
1. Create a budget.
It’s your proactive blueprint for success. This means that everything related to your budget is on the table for consideration. You do whatever it takes to get your primary cost to be 55% or less (total cost of goods sold + total labor cost). Your budget is your plan for how you will make changes to overcome these challenges.
2. Attack your menu.
Attacking your menu means reducing the number of items you sell to create efficiencies in the kitchen. This can reduce prep so you can reduce the number of cooks you need on the line at the same time. Adjusting your menu to reduce labor cost is one way to combat inflationary pressure. Recipe cost cards are essential because you need to know how much each item you sell costs you in order to know what price you can sell it for. Then you can use your POS mix, what your customers are buying, your actual recipe costs and what you’re selling it for and calculate what your ideal food costs should be based on what your customers are actually buying. It also gives you the opportunity to revamp your menu and reduce your food costs, often by 3-7 points if you never did menu engineering in the first place. Knowing how much the products you sell cost also allows you to make changes that move customers to other, more profitable items.
Either way, you need to be ready to attack anything on your menu. I have members who have deliberately given up on top sellers because the labor to prepare and make them is so high that it exceeds the profit on other items.
3. Budget for labor.
With a budget, you can determine what your labor costs should be per period, whether you are in a 13-period or monthly accounting cycle. What is your labor cost for this individual period? And in doing so, I teach a system called Restaurant Payroll Guardian, which tells your managers how many hours they have and how much they have to plan next week within budget.
The idea of budgeting is to turn the tide instead of being reactive. The most common way to manage labor that I see is to bring people in and cross your fingers that you’re busy enough to pay for the hours. When you’re not busy enough, you send them home before it’s too late. I teach restaurateurs how to proactively plan the budget knowing you have a set number of hours in the kitchen and that’s it.
While this is certainly not an exhaustive list, these are the things I recommend to members of my restaurant coaching group, and I want you to do them and start them today.