Food inflation is confined to service & product price increases in the food economy. The UN’s Food and Agriculture Organization states that global food prices have risen by over 60% since the coronavirus outbreak — and have increased by more than 10% this year since Russia invaded Ukraine.
With substantial food price increases, consumers take more interest in other options than having restaurant meals or takeout. According to an NPD Group study, restaurant traffic is down 4% versus pre-pandemic levels. The average number of items per order receipt observed a decline to 3.5 in 2021 from 3.8 in 2019. In response, your companies should tackle inflation in the following ways.
Food prices rising 2022: Key takeaways
- Inflation accelerated to over 9% in June, being a new 40-year high.
- The price changes stretch far beyond grocery items and retailers. According to the Bureau of Labor Statistics, the consumer price index for food away from home (not seasonally adjusted) increased 7.6% over the past year (July 2021-2022).
- Consumer Price Index report shows that practically all grocery items are now pricier. For instance, cereal prices saw a 15% increase in June compared to the past year and the cost of eggs has been 33% higher.
- According to the U.S Department of Agriculture, food prices are expected to see an 8.5-9.5% rise in 2022.
- Dining establishments may keep capturing the consumer budget since the food at home in July 2022 is at a whopping 13.1%.
What causes the increase in food costs (food supply chain disruption aside)?
Supply chain issues: The global food supply chain disruptions owing to COVID-19, including processing, production, and retail.
Transportation cost: The transportation cost in the U.S. has a year-over-year increase of more than 34%, mostly due to the shortage of truck drivers.
Russia and Ukraine war: About 1/3 of worldwide barley and wheat comes from these 2 countries, and Ukraine is a large producer of corn and sunflower oil. Nevertheless, Ukraine’s agricultural production and exports have suffered due to the war. According to the market data, its cargo exports have observed a year-over-year decline of 92%. Further, fertilizer price increases resulted from the Russian invasion of Ukraine. Morgan Stanley states that the region takes responsibility for over 25% of the global fertilizer exports. According to the American Farm Bureau, several fertilizers have soared 300% versus September 2020 prices. The war has also made energy prices rise. The United States government and some other countries have banned Russian oil, causing higher gas pump prices.
Bird flu outbreak: The bird flu outbreak in Europe and the U.S has affected over 38.01 million birds, including chicken breeds for producing eggs, forcing farmers to increase their egg prices.
General inflation worldwide, natural disasters like drought in major markets with corn and wheat sourced, and higher labor costs
Real effects of food price skyrocketing
1. On restaurant costs
New York Times report shows the rise in ingredient prices particularly for Good Food on Montford (in North Carolina) (Image: NewYorkTimes)
Occupancy, labor, and food costs are expected to stay high, affecting restaurant profit margin this year. Producer prices for food rose by over 12% in 2021, whereas labor tightness led restaurant wages to increase by 10% for employee attraction or retention. All those have contributed to higher menu prices.
2. On the demand of consumers
According to the Technomic report, every $0.50 rise in gas prices causes an impact of over $65 billion on consumer spending. And the top 2 cutback mentions are restaurants.
More than 65% of consumers feel a (considerable) increase in prices of restaurant meals and think they can get reduced value from patronizing the restaurant due to higher prices. In response, aside from using a cash back app, they take interest in:
- (36% of people) Spend less money in some personal finance categories, especially discretionary items (e.g., dining out and travel);
- (51%) Eat out less often;
- (46%) Order less (revealed by Risk Management Solutions);
- (34%) Order cheaper items and (30%) Select less pricey restaurants and wholesale clubs like Sam's Club and Costco rather than grocery stores (revealed by Risk Management Solutions);
- (3 in 5) Have more interest in food at home (revealed by Risk Management Solutions).
How to deal with rising food prices
1. Increase your restaurant prices and let consumers stay informed
Amid ongoing inflation, some companies like Feedwell Kitchen and Bakery take a smart move by sharing the calculations that drive their restaurant price rise.
You may do so and appeal to your consumers' empathy and good judgment, instilling trust and cementing relationships with the guests and concurrently reducing the pressure with higher food commodity prices.
A pro tip for dealing with inflation is through small rises in the prices of your menu items. For instance, a 3% rise on meals that cost $15 would raise the price to only $15.45. This way lets consumers feel they still get enough value and increases your restaurant's profitability.
2. Take advantage of trade downs by monitoring your food prices systematically
You can consistently gain actionable insights with daily/ weekly reports on food costs and other cost breakdowns. This data and reporting from the One2 platform can help you learn costing trends to follow or handle, decrease the number of unique menu ingredients, remove items that have high portion costs but are not often ordered from the menu, and reduce the amount of on-hand inventory used for operation.
3. Think strategically about your specials
If guests are only ordering discounted items and not adding regular ones, you should increase the margin through the specials. For example, offer lower discounts, smaller portions, or combo deals with both low- and high-margin ingredients.
Discounts aside, you may include some once-a-week menu items at favorable prices in limited-time offers, leveraging exclusivity to boost sales. It is likewise great to capitalize on loyalty programs to attract interest and improve purchasing power.
4. Lower food prices by substituting ingredients
Wingstop is a popular example in this regard. When facing rising wholesale food prices on chicken wings, this site chose to use chicken thigh with the bone in. It even introduced Thighstop as a virtual brand.
5. Save labor costs
One of the biggest costs for most dining establishments is human resources and there is money to be saved. Restaurants that use the all-in-one One2 ordering & delivery platform can save significantly on labor-related costs every year. For instance, having your customers order via its safe, cost-effective and always up-to-date QR code menu allows servers to focus on other tasks, say delivering orders.
6. Optimize dine-in services
One2 QR code menu
The One2 platform with the contactless QR code menu and virtual POS allows you to do more with less by:
- Serving more diners with fewer employees.
- Saving time with a simplified order & checkout process and menu management.
7. Optimize your takeout & delivery services
One2 online ordering system can help you boost online sales and save you from high commission fees charged by 3rd-party delivery companies. Above all, it empowers you to optimize digitizing services for the highest possible profitability by:
- Letting you build your direct ordering.
- Improving your search ranking for free.
- Delivering the best payments experience online.
- Supporting multiple locations.
- Giving access to reporting, allowing you to adapt operations based on customer behaviors.
8. Run well-timed marketing campaigns
The next mega pay dates are on December 30, December 2, and September 30. These are when benefit payments and paychecks concurrently happen.
You can make good use of this by using the One2 system to time your offers during that time when people tend to treat themselves by dining out. Contact us for support.
Related questions
1. What is the consumer price index?
It means a measure of the average change in the prices consumers pay for particular consumer services and products over time.
2. Any positive numbers across the restaurant sector amid food price inflation?
Restaurant traffic is 4.3% lower year-over-year in July, being quite an improvement over the 9.4% year-over-year decline in traffic in May.
Besides, some key food commodity prices have reduced from the recent highs. For example, wheat costs have seen a 253% reduction since the middle of June.
3. What food prices are rising the most?
- Eggs
- Chicken
- Flour
- Milk
- Bacon
- Ground beef
- Poultry
- Groceries
- Fruits and vegetables
- Nonalcoholic beverages
4. When will food prices go down?
According to Preston, Head of U.S. Economics - Morningstar, 2022’s Personal Consumption Expenditures Price Index is expected to decrease to about 1.5% during 2023-2025.
5. Which is worse, food deflation or food inflation?
Should deflation be caused through negative factors, say efficiency decreases throughout the markets or demand falls, deflation may be worse.
