Should You Raise Menu Prices to Cover Input Costs?


Input costs are rising in the hospitality industry, and it’s up to you to find a balance to manage them without sacrificing the quality your customers expect.

The 2020s have brought rising input costs that have affected the entire restaurant industry.

Shortages and supply chain issues, long delays in what should be fresh food and the rising cost of wages have made it harder for restaurants to make ends meet than ever before.

If you’re operating in a post-pandemic environment, it’s up to you to decide how you want to manage your input costs without falling further behind.

Rising Input Costs for the Hospitality Industry

If you’ve been in business for a while, you’re familiar with managing input costs in the hospitality industry. These costs include bulk food, specialty items, petrol and overhead, such as electricity and facility costs.

Since the 2020 wave of lockdowns and the post-COVID inflation, you’ve probably noticed these costs getting harder to manage. At the same time, hospitality vendors in many locations also have to manage the difficulty of rising wages and the effect of inflation.

Together, these factors have made it hard to keep service profitable without making some major changes.

Options to Adjust

Restaurateurs have traditionally had three options to manage rising input costs: raise prices, cut costs somehow or sacrifice quality.

Which one of these winds up being the right choice for your establishment depends on the situation you find yourself in and what your forecasts have been for recovery going forward.

Related: How Restaurant Up-selling Can Increase Turnover

1) Raise Prices

The first solution that occurs to a restaurateur facing rising input costs is usually to raise menu prices.

On the surface, this is the obvious way to go. Revenue ultimately comes from customers paying for their meals and drinks, so a higher rate for those items should balance the ledger.

But it isn’t quite as simple as that.

Rising costs, even in a period of inflation, tend to drive off customers and reduce throughput. For a busy restaurant that lives on these margins, this can be disastrous.

Raising prices and discouraging new customers is especially untenable now, after the permanent demand destruction induced by the pandemic, which adjusted millions of people worldwide to staying at home and ordering in.

Anything that discourages these already marginal customers is likely to cut into your ability to attract anyone at all.

2) Cut Costs Elsewhere

You might be able to cut costs elsewhere, without losing too many of your customers to stay afloat.

Consolidating shipments and buying expendable items in bulk, for example, fractionally cuts some of your most common input costs and may take a small amount of pressure off.

Economizing on utility consumption, such as electricity and gas, or catting back on the advertising budget can all generally be done without too great of a sacrifice to the quality or competitiveness of your restaurant, at least from the customers’ angle.

There’s a definite limit to how much this can help, however, since any costs that were easy to cut were probably places you went after a long time ago, leaving little fat to trim now.

3) Economize on Inputs

“Economize on inputs” is a euphemism for cutting the quality of your dishes and using cheaper food. It’s rough, and almost every restaurateur hates to do it, but for many it might be the only option left.

Switching to flash-frozen seafood instead of fresh, using a lower grade of beef or cutting back on the extra-virgin olive oil in favor of a lower-cost blend all sound like bad things, but with skilled staff in the kitchen, you might be surprised at the corners you can cut without compromising on overall quality for your customers.

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