Phone: (413) 727-8897 email:

Thursday, August 07, 2014

High Food Cost Due To Inflation

The June Consumer Price Index (CPI) shows a 7.5% increase in the category meats, poultry, fish and eggs (see chart below).  This category is very important for most restaurant operators.  The protein component of most restaurant meals has the highest weight.

Over many months, protein costs have been on the rise.  The trend may correct later this year since the 2014 corn crop is excellent.  Corn futures have been in a free fall since early May 2014.

Source: US Bureau of Labor Statistics - June 2014 - CPI Summary

Should you increase your menu prices to cover the significant rise in your invoice costs?

The answer is yes for almost every operator.  Unless you face very stiff price competition in a market with a steep decline in restaurant visits, it is essential to raise menu prices.  Many operators have increased menu prices to help offset increases in labor costs due to health insurance premiums.  Your guests see the increase in food prices 

If you never prepared a budget for 2014,  you may have a tough time putting the food cost inflation in perspective.  A rise in the cost of goods sold of 10% (e.g. from 30% to 33%) can completely wipe out profit at many restaurants.

Should you raise menu prices across the board?

I would vote for an across the board menu price increase in 2014. 

It has become more difficult to hide profits in non-alcoholic beverages and extras.  Restaurant visitors are looking for a high quality meal for a price that meets their budget.  Many diners are opting for tap water.  Guests are taking a close look at their checks and they are modifying their behavior as they see pricey drinks and charges for extras.

If your current check average is $20, an across the board increase of 3% would raise the check average to $20.60.  An aggressive 10% increase would take the check average up to $22.  You need to study your local competition.  You need to know your guests.  Will your guests adjust their menu choices to keep the check average at $20?  If you think a 10% increase will drive your guests out the door or cause them to order fewer items, you should go with a modest increase.

One thing is for certain.  This is a very tough year to discount menu prices.  If you depend on deep discounts and coupons to fill your dining room, the current rise in protein costs will wipe out your profit.

No comments:

Restaurant Data Pros

web counter