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MRV BLOG: Combating Restaurant Inflationary Challenges

What if your competitors had to raise their prices to keep up with rising costs, but you did not?

Let’s back things up first to level set.  Over the past year, labor costs have increased while finding and retaining good employees has also become more difficult. For restaurants, this has taken the celebration out of a concurrent increase in demand. That has been partially fueled by emerging from the pandemic but also because while food-away-from-home prices have increased 8.5%, food-at-home prices have increased 13%. (Restaurantdive.com, Nov, 2022)

But as we’ve seen and felt, it is not just labor costs confounding the bottom line. Cost of raw materials has increased and now with supply chain challenges continuing, that has exacerbated the problem. And not to be left out with the expense increases, utilities are now more costly.  Food costs alone rose 10% in 2022 (USDA) and while perhaps more of a regional dynamic, natural gas prices in California specifically have risen sometimes more than 200% recently (LA Times, January 28, 2023).

All this would suggest passing pricing increases along to the consumer.  For a while, the consumer’s…appetite…for higher prices has been like the bread basket before the meal—they don’t necessarily want it, but they’ll still handle it like a champ.

Or will they?

Breaking Point

According to Eatery Pulse, 92% of restaurants increased their prices in 2022 and 73% plan on increasing prices in 2023.  This already sounds difficult for the consumer to sustain, even before factoring in inflationary dynamics across the board. Beyond eating out, Americans are facing year-over-year price increases like a 38% increase on eggs, 23% on flour, 18% on chicken, and 10% on ground beef (ABCTV).

So if almost three-fourths of restaurants plan to raise prices in 2023, how can you be the one-fourth that doesn’t?  One way would be to absorb the increase in costs and watch your margins decline. But what MRV Dairy Solutions specialists are seeing, many are looking at where they can better manage those costs or those supply chain hurdles.

“We’ve had our share of clients not only struggle with recent industry and inflationary cost increases, but also face challenges in securing basic dairy product from the dairy supply chain,” confirms MRV Dairy Solutions Specialist Mike Dobbs. “While each client’s needs and circumstances have been different, MRV Dairy Solutions has been able to identify solutions to get dairy products to our client restaurants.  For those facing higher dairy prices, the MRV model has enabled our client restaurants to contain many of these costs increases, resulting in not having to pass on higher prices to their patrons.”

Even while inflation might be cooling, it is still at rates much higher than seen the past decades. This coupled with a possible recession with layoffs anticipated suggest it is advisable to rein in costs wherever possible from a bottom-line perspective and a competitive advantage.

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