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Savory managing director Andrew Smith said this past summer’s inflation was a “cataclysmic shift” in the cost of doing business, with prices of some goods tripling.

Operators respond to the ‘cataclysmic shift’ in food costs

In the latest Live Learning Series discussion for emerging restaurateurs, experts share approaches for coping with inflation

Inflation has upended the cost of running restaurants and operators need to rework the math when it comes to managing costs, particularly when it comes to the menu, according to experts who shared their views with attendees of “Menu Economics: Navigating Food Inflation.”

The webinar, still available to view online, is part of Nation’s Restaurant News’s Emerging Restaurateur Live Learning Series, produced in partnership with Savory Restaurant Fund and Black Box Intelligence, sponsored by SunGlow.

Savory managing director Andrew Smith said this past summer’s inflation was a “cataclysmic shift” in the cost of doing business, with prices of some goods tripling.

“Nobody is immune to it,” he said, adding that restaurants making 20% or more in profits were an extreme rarity now, with profits in the teens being more common now.

Comparing a restaurant to a ship, Smith said “the small little leaks out of the bottom are what’s going to sink you.”

That includes food costs that have been creeping, or in some cases leaping, out of control.

Smith’s colleague, Maryam Chaney, vice president of food & beverage of Savory Management, said operators need to stay on top of events that are likely to affect their cost of goods, whether that’s avian flu driving up egg prices, drought affecting the cost of beef, or war causing fuel prices to spike.

“Don’t keep your head in the sand,” she said. “Don’t keep it even in the four walls [of your restaurant]. Look at what’s going on in the world, and you’ve got to become a proactive business operator and connect the dots so you know if there’s something that’s going to be affected in terms of an ingredient [or] a trend that you can plan accordingly.”

Tom Bailey, senior consumer foods analyst at Rabobank, agreed, and added that consumer disposable income, which reached record highs during the 2020 lockdown, was now back down to around 2008 levels, meaning potential restaurant guests would likely be spending less, and it explained why guest traffic was down (even though sales are up because of higher prices).

He said independent restaurants actually have seen better traffic compared to chains, possibly because they have been slower to raise prices and consumers have recently become even more price sensitive. He predicted that people would be trading “values” for “value,” as they tend to do during economic downturns. That could mean a move from buying cage-free eggs to conventional eggs, purchasing less organic food, and other buying shifts. He said demand for frozen items was already up and suggested restaurants could consider buying more frozen products too, which can be less expensive and also help alleviate supply-chain issues.

“Cost cutting is essential in this environment,” he said. “Only invest in areas that help you to be more efficient.”

To take a pulse of the audience, moderator Sam Oches, NRN’s editor-in-chief, asked attendees to respond to a poll asking what they were doing to combat inflation. About 40% said they were raising prices, nearly 21% said they were adding margin-friendly limited-time offers, 14% said they were revamping recipes, 12.5% said they were downsizing the menu, 11% said they were streamlining back-of-house operations and just around 1% said they were simply absorbing the costs.

The chefs in charge of menu innovation at MOD Pizza, Walk-On’s Sports Bistreaux and Modern Restaurant Concepts, discussed how they were adapting to inflation and supply-chain disruptions.

Scott Uehlein, vice president of culinary excellence and innovation at MOD Pizza, said he was looking at many of the chain’s ingredients, many of which are proprietary, and looking to see if there are any specs they could change.

“Is there a different flour you can put in? A coating? Can you take out Madagascar vanilla and put a blend of other vanillas in and save some cost? It’s worth the exercise,” he said. “Revamping recipes … might be easier than people think.”

He said he’s also testing removing certain toppings, market by market.

“In some cases [customers] say, ‘I want it back.’ In other cases they seem to shrug it off,” he said. He added that he and his team also monitor social media to understand their guests’ reactions, as well as engaging with them one-on-one when that’s possible.

He suggested that restaurateurs check with their distributors about what off-the-shelf alternatives might be available to products they currently use.

Revey Wilson, senior director for foodservice marketing at Ventura Foods, which owns SunGlow, said restaurant suppliers were likely already working on potential replacements for hard-to-find and/or expensive ingredients, and they have the resources to test, sample, and validate changes to signature sauces, and added that this might be a time when historical “sacred cows” such as butter, might be worth reevaluation.

“it’s up to the operator to know what are the ingredients that can have substitutes,” she said.

Mike Turner, senior vice president of culinary and supply chain for casual-dining concept Walk-On’s, said that chain’s food cost actually dropped by 1%-1.5% over the past six months because they had locked in good commodity contracts early.

“Through some smart buying [and] some great vendor relationships we’ve been able to leverage that and really capture those costs,” he said.

He added that he and his team had also been successful at “manipulating menu mix,” for example by marketing away from mahi mahi and catfish as prices of those items rose.

Anticipating high ground beef prices in the first quarter of 2023, he said they would likely be promoting items other than burgers.

Turner said they’re also looking at shrinking their menu: Their current menu has around 75 items, but he’s testing a menu with 55 items at seven restaurants. An even smaller menu is in the works for a new limited-service model they’re working to develop next year.

“That we think’s going to be our future,” he said.

Nate Weir, vice president of culinary for Modern Restaurant Concepts, which operates Modern Market and Lemonade concepts (and also recently purchased Qdoba, although he didn’t discuss that because it’s still being integrated, other than to joke that adding a chain with hundreds of locations would get them better deals on gloves), said that while the chains have traditionally relied on in-scratch preparations to cut down on food costs, that doesn’t work as well anymore as the cost of basic commodities is so high.

“Cauliflower is through the roof right now,” he said, adding that the food cost of their riced cauliflower is now around 70%

“The things that have always worked for us are not quite the same magic bullet that they once were,” he said.

So he’s getting back to the basics — plugging those leaks that Smith mentioned.

“Focusing on the blocking and tackling is always a key thing,” he said. “Spend some time on the line and watch what’s going on.”

In the meantime, he’s trying to attract guests with less expensive items, such as the new Greens and Grains Bowl at Modern Market that’s priced at $10.45. It’s the chain’s first bowl that doesn’t automatically come with protein, which guests on a less strict budget can add if they want to.

He also has brought back half-sized items for similar reasons.

More details can be found by watching the webinar here.

Contact Bret Thorn at [email protected] 




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