Food inflation has caused restaurant prices to skyrocket, but the best restaurants have survived by offering quality experiences and excellent customer service.
Key Details
- Food prices have been among the most affected by inflation, with an 11.4% increase between 2021 and 2022 and 7.7% in the past year.
- Among the worst affected have been restaurants, which have reportedly seen an 8.6% increase in prices in the past year.
- The effects of this increase in restaurants are having far-reaching effects on menu prices, with many restaurants having increased what they charge by 20% to 25% in the past year to accommodate rising commodity costs as well as increased labor rates and expenses.
Why It’s Important
The COVID-19 pandemic has done serious damage to the U.S. small-business economy. In a June 2021 interview with MSNBC, Vice President Kamala Harris claimed one-third of the small-business economy was destroyed by COVID-19, which Politifact, a website that rates the accuracy of claims by elected officials, confirmed to be 37.5%. This was true of restaurants as well, which saw more than 72,000 permanent closures.
The subsequent skyrocketing inflation has done additional damage to the restaurant industry, as labor shortages and rising commodity prices have created poor incentives for continuing to operate a restaurant in the current economic climate—an industry where 80% of businesses tend to fail within their first five years under ideal conditions.
Mark H. Brezinski is an author and restaurateur. He tells Leaders Media that there is no singular factor for success in the current economy. His town of Dallas has seen persistent growth and demand, shielding many of his businesses and colleagues from some negative consequences of the current economy. The restaurant industry is a dynamic business, and food inflation is not always just caused by one or two factors. Restaurant owners simply have to experiment and find the ceiling for how much they can charge without alienating customers.
“People think you pay more for a steak, so you charge more. You have to raise prices because labor prices are going up too. Managers are being pinched by inflation, and you have to pay them more to keep them. Prices are a bit of smoke and mirrors because they’re based on an insidious number of factors,” he says.
Possible Solutions
Brezinski says that many restaurants that have survived COVID and high inflation are the ones that foster an excellent quality experience and customer service. Customers who are feeling their pockets tighten have no choice but to pick their restaurants selectively and are choosing great restaurants over mediocre ones.
Convenience and inexpensive prices helped fast food and fast-casual restaurants survived the market through flexibility and embracing delivery apps. High-end sit-down restaurants do not have this option. They have to compete by offering the best experience possible.
“The people I know with full-service restaurants really emphasized quality. If you’re going to raise prices, you better emphasize hospitality and appreciation for customers. You can provide a better service and become more takeout friendly. My friends with good reputations and mature businesses weathered the storm incredibly well. They say they’re doing better now than before the pandemic. People have gotten back to going out really quickly in our markets,” says Brezinski.
“At some point, if you’re not performing or executing your brand as well as somebody else, and if people are going out less, there will still be a line at the most popular place. A mediocre restaurant will lose out. Customers will subconsciously reduce these places in their restaurant rotation to the best of the best.”