Restaurant Inflation: Effects of Price Increases on Diners

In recent years, inflation has been one of the hot topics surrounding the US economy. As it affects our daily lives significantly, both consumers and businesses look for ways to combat inflation. If you’re interested in that, check out our post on how to deal with inflation in a business. In this article, we’ll shed some light on the topic of restaurant inflation. We’ll explain how price hikes affect diners and what business owners in the food service industry can do to combat increased prices. Make sure to also read our post on the effects of economic stagnation and how a company can prepare for turbulent times.

Key takeaway: Restaurant inflation refers to an increase in the menu prices of restaurants. It usually occurs when there’s an overall increase in the prices of food, energy, labor, and other costs that make up a large portion of a restaurant’s expenses. 

How Does Inflation Affect Restaurants

As we’ve already detailed in our post about the impact of inflation on businesses, most companies are affected negatively by inflation. Although some businesses can pass the cost to customers, high inflation usually means that the overall state of the economy is not good. During such times, consumers usually limit restaurant visits or takeout orders. This can cause significant problems for food service businesses. Here are the main ways rising prices affect restaurants.

1. Changes in consumer behavior may lead to fewer diners, lower revenue, and a reduction in tips for waiting staff;
2. Rising prices are the main characteristic of inflation. That’s why restaurants need to combat the rising costs of ingredients. That’s true not only for specialty and imported goods but also for staple foods such as meat, produce, grains, and oils;
3. Employees also expect their wages to go up during inflationary periods. That’s why the restaurant industry needs to calculate higher labor costs;
4. Inflation is usually accompanied by supply chain disruptions, failure of businesses, recession, and other economic problems. Thus, restaurants may need to switch distributors, change their business model, discover new revenue streams, and adapt to the situation in other ways.

Restaurant Inflation in Recent Years

Since 2020, the restaurant industry has been through various challenges. Beginning with lockdowns and significant disruptions in various sectors, food service establishments had to switch to more online orders. Furthermore, they had to improve efficiency in things like inventory and storage, staff management, and wholesale orders of ingredients. Supply chain disruptions and high inflation followed, which were also big challenges for the dinner sector. According to the Bureau of Labor Statistics, average menu prices have increased by more than 27% between February 2020 and June 2024. The reasons mentioned above are just some of the factors that have contributed to this restaurant inflation. Although some large restaurant chains have invested in reducing the cost of goods sold through efficiency and innovation, that’s not something all restaurants can do.

Even though these price increases might seem significant from a consumer standpoint, most restaurants have the same or lower profit margins compared to the pre-pandemic period. Although the pandemic is already behind us, operators of food service businesses are still combating the effects of lockdowns, disruptions of food and agricultural supply chains, high restaurant inflation, and changes in customer behavior. If you’re a restaurant manager, make sure you have a thorough restaurant risk management plan that can guide you through troubled times.

How Restaurants Can Combat Inflation

Preparedness is the best way to combat challenges in any industry. Building a recession-proof business can be hard, but it will allow your company to go through difficult times. Here are a few ideas on how to limit the impact of restaurant inflation and prepare your food service business for such scenarios.

1. Make regular menu adjustments and consider reducing portion sizes to combat increased ingredient costs. The easiest way to do so is if you benefit from QR codes for restaurant menus.
2. Balance staff needs and consider investing in automation.
3. Order in bulk in order to benefit from wholesale prices.
4. Reevaluate the need for various supplies such as wholesale restaurant supplies or wholesale janitorial supplies.
5. Adapt to shifts in consumer behavior by offering higher value, budget-friendly options, discounts, and other promos to encourage customers to order from your restaurant or visit the place.
6. Renegotiate with suppliers to see if you can get better deals.
7. Consider offering more services and introducing additional revenue streams. This can include things like selling merchandise, renting out your kitchen as a commissary kitchen, organizing workshops, and more.
8. Benefit from market opportunities. Restaurant inflation and other economic turmoil create a lot of opportunities. Don’t settle for surviving, aim for winning and growing your business.

Frequently Asked Questions about Restaurant Inflation

You’ll find tons of useful content on BlueCart’s website. From details on how to use business analytics tools to information about the effects of high interest rates on businesses, there are many useful posts. Below, we’ve answered some frequently asked questions regarding restaurant inflation and the effects of increased prices on businesses.

What Other Industries Are Affected by Inflation?

Although inflation affects all sectors of the economy, some markets suffer more than others. For example, the food and beverage industry is often affected the most when prices start to rise. Although this sector has a fairly small elasticity, businesses can’t pass the costs to consumers in full. Sectors that have fairly small profit margins are also affected negatively by inflation. For example, broadline distributors stock products from many producers. In order to keep their prices inflation-adjusted, they need to have impeccable price management. Otherwise, their business might run at a loss.

Can Inflation Be Good?

Although high inflation is bad for consumers and the economy, deflation can be even worse (read our post on how deflation affects businesses). That’s why central banks like the FED aim at a ‘healthy’ inflation of around 2%. This gives businesses predictability and protects the economy from the devastating effects of deflation. Inflation is also one of the drivers of economic growth. People are stimulated to use their money and consume, which leads to more revenue for businesses. Although inflation has cons, it can also benefit the economy and people if it’s moderated properly by the central bank.

What Causes Inflation?

Various factors can lead to a rise in prices and inflation. Let’s examine the main causes of inflation.

1. Rise of production costs related to increased raw material prices (oil, metals, and others), increased labor costs, or increased transportation costs (primarily caused by supply chain disruptions);
2. Increased demand for goods and services stimulates businesses to increase prices;
3. Monetary inflation is caused by central banks when they increase the money supply or introduce low interest rates. Check out our post on the effects of low interest rates on businesses;
4. Imported inflation can occur when the cost of imported goods is higher due to currency weakness or tariffs.

BlueCart: The Platform Where Suppliers and Restaurants Meet

Whether there is high inflation or not, restaurant businesses need to use innovative solutions to manage their suppliers and inventory. BlueCart can be an excellent way to do so. Thanks to our platform, food service companies can easily order from wholesalers, manage their stock, find suppliers, and compare prices between different distributors. Wholesalers can also benefit from BlueCart in various ways. From hassle-free creation of eCommerce catalogs to expansion of B2B sales. Schedule a demo today and see how BlueCart’s wholesale ordering software can help your business.