Food Inflation by the Numbers & How Restaurants Can Prepare
While food inflation challenges may appear inevitable, restaurants can prepare to offset its adverse effects and uphold profit margins. Restaurant Social Listening Market Intelligence As we venture deeper into 2023, the restaurant industry continues to grapple with impacts of inflation, shifting customer dynamics, and an uncertain economic outlook. While these challenges may appear inevitable, restaurants can offset the adverse effects of food inflation and uphold profit margins. The obvious question is how.
Looking at the Numbers This year, U.S. food prices grew at a slower rate in February compared to January (9.5% versus 10.1%). And although prices are expected to continue to grow more slowly in 2023 than in 2022, price growth is still projected to be above historical-average rates. In 2023, all food prices are predicted to increase 7.9%, with a prediction interval of 5.5 to 10.3%. In 2022, food prices increased by 9.9%. Food-away-from-home prices are predicted to increase 8.3%, with a prediction interval of 7.1 to 9.6%. In 2022, prices increased by 7.7%. The all-items Consumer Price Index rose by 0.6% from January 2023 to February 2023 and was up 6.0% from February 2022. The food-away-from-home index rose 0.6% in February 2023, as it did in January. It rose 8.4% over the last year. The index for limited-service meals increased 0.7% and rose 7.2% over the last 12 months. The index for full-service meals increased 0.6%. It rose 8.0 % over the last 12 months. In the U.K., overall inflation is also projected to fall in 2023; however, food price inflation is expected to remain high in the short term. The Consumer Price Index rose by 9.2% in the 12 months to December 2022. According to the British Retail Consortium, the reported food price inflation rose to 13.3% in December, compared to 12.4% the previous month. Overall inflation had begun to fall during the last two months of 2022, but the inflation rate for food and non-alcoholic beverages had continued to grow. As we highlighted in our recent restaurant sales and traffic trends report, February’s results still benefited from easier laps because of the COVID-19 spikes early in 2022, but it was significantly lower compared to January, foreshadowing possible future challenges. It’s not all bleak, though: commodity and labor cost pressures are starting to ease, meaning menu price increases and their effect on average guest checks are projected to moderate this year. Nonetheless, inflation remains a primary concern for restaurant owners according to a survey conducted by TD Bank. In response, some restaurants may be tempted to implement what would appear to be the most logical solutions, for example, cutting labor costs and/or raising menu prices, without exploring more advantageous alternatives.
How Restaurants Can Combat Rising Food Costs Finding the right balance between raising prices and maintaining customer loyalty is crucial. The brands performing at the top of their segment through times of economic uncertainty have one thing in common: they focus on value. On the surface, you might think changing portion sizes or menu prices will work in your favor. This shortcut doesn’t take into account why customers invest in your brand. If you’re known for having the crispiest chicken but switched to a more cost-effective flour vendor, you’ll see the negative financial impact of that change and its negative impact on your online restaurant reviews and future guest traffic. It's the context feedback data provides that reveals what matters most to your guests so you know exactly where you can and can’t cut corners. For instance, Black Box Intelligence data shows that over the course of three years, full-service and limited-service restaurants with the lowest check growth had better traffic, guest sentiment, and customer retention. Of course, not all the elements that influence average check size are within your control. But what is? Understanding what your customers are looking for when they’re under their own set of budget constraints. Consumers are trading down when making dining decisions, putting perceived value and quality at the forefront of their research. Larger brands often have well-established reputations with sizable loyal customer bases. Customers may be more willing to pay higher prices for the convenience and perceived quality associated with a recognizable brand. Larger brands may also benefit from economies of scale, meaning they can purchase ingredients and supplies in larger quantities at lower prices, reducing their overall costs. If you’re an emerging or medium-sized restaurant brand, you need to identify the best alternatives and power informed decision-making. As consumer preferences continue to trend toward budget-friendly dining options, there are certain risk-free tactics you can tackle to get ahead: Fine-dining and full-service restaurants should follow a similar model to their quick-service counterparts: bundles and limited-time offers. People are more likely to take advantage of a deal when it seems like they’re getting something extra for their money. Full-service restaurants can also implement loyalty and rewards programs to offset the impact of rising menu prices to position their brands as a budget-friendly option. This incentivizes repeat business among loyal customers and helps build a strong customer base. Besides, customer loyalty programs provide valuable data into consumer behavior, preferences, and spending habits. Offer a set-price menu with a variety of courses, giving customers the quality of a fine-dining experience at a better price. Additionally, create promotional campaigns to encourage customers to come back during traffic lulls. As long as you’re able to identify what part of the customer journey in your restaurant has the greatest impact on your sales and traffic, you’ll be able to keep your team focused on the right areas to improve.
The Bottom Line: Maximize Your Customer Feedback Analysis To effectively combat the challenges of inflation, start by not just capturing customer feedback data but transforming it into insights needed to make informed decisions. It’s essential to note that what works for your competitors may not be the right fit for you. To clarify, data refers to raw and unprocessed information that lacks context and interpretation. Insights, on the other hand, are the meaningful and actionable conclusions drawn from analyzing and interpreting data. Insights provide valuable understanding, meaning, and knowledge to support problem-solving or discovering patterns, relationships, and trends within the data. It allows us to understand why something is happening and how to take action. The problem is, however, without properly digesting the raw numbers, the data you're accumulating is mostly meaningless. If you're a smaller brand, the key to overcoming inflation woes is focusing on what your customers value most. Having the right data set can help you find the correlation between what customers want, what you can provide, and how you’re delivering on their expectations. It is therefore imperative you have a process in place to help your team understand and effectively act on all the feedback data piling in from multiple sources.
Insights Drive Informed Decisions By comparing your restaurant's sales and traffic performance to industry, segment, and designated market area benchmarks, you can identify areas where you may be underperforming and take steps to address these issues. For example, you can optimize pricing and check growth by keeping tabs on check size trends and follow the impact local price change has on sales, traffic, and guest sentiment to maximize margins. Additionally, having access to workforce analytics and insights ensures that you stay on top of the trends that help you remain competitive across local markets. Use these insights to increase employee satisfaction, reduce turnover, and thus, as we pointed out earlier, elevate your guest experience. Even small improvements in hiring, onboarding, and managing workforce can result in significant return on investment. If your customer satisfaction is lower with service than it is with ambiance, retaining a motivated and skilled team will be crucial for your restaurant to operate efficiently. In fact, our research shows guest net sentiment improves with less employee turnover. Last, but certainly not least, guest sentiment and review sites remain key drivers of year-over-year increase in guest traffic. Gathering direct and indirect customer feedback, or omnichannel feedback, gives you a comprehensive view of the guest experience to target areas of improvement. In other words, you can gain invaluable insights into guest preferences, behaviors, and pain points and can uncover trending topics that can influence new products, services, and experiences. If you’re interested in learning more about omnichannel data collection, check out “ The Ultimate Guide to Direct and Indirect Feedback,” where we discuss the different types of feedback, examples for each, and the exact steps you can take to ensure your feedback makes sense and is actionable.
Looking at the Numbers This year, U.S. food prices grew at a slower rate in February compared to January (9.5% versus 10.1%). And although prices are expected to continue to grow more slowly in 2023 than in 2022, price growth is still projected to be above historical-average rates. In 2023, all food prices are predicted to increase 7.9%, with a prediction interval of 5.5 to 10.3%. In 2022, food prices increased by 9.9%. Food-away-from-home prices are predicted to increase 8.3%, with a prediction interval of 7.1 to 9.6%. In 2022, prices increased by 7.7%. The all-items Consumer Price Index rose by 0.6% from January 2023 to February 2023 and was up 6.0% from February 2022. The food-away-from-home index rose 0.6% in February 2023, as it did in January. It rose 8.4% over the last year. The index for limited-service meals increased 0.7% and rose 7.2% over the last 12 months. The index for full-service meals increased 0.6%. It rose 8.0 % over the last 12 months. In the U.K., overall inflation is also projected to fall in 2023; however, food price inflation is expected to remain high in the short term. The Consumer Price Index rose by 9.2% in the 12 months to December 2022. According to the British Retail Consortium, the reported food price inflation rose to 13.3% in December, compared to 12.4% the previous month. Overall inflation had begun to fall during the last two months of 2022, but the inflation rate for food and non-alcoholic beverages had continued to grow. As we highlighted in our recent restaurant sales and traffic trends report, February’s results still benefited from easier laps because of the COVID-19 spikes early in 2022, but it was significantly lower compared to January, foreshadowing possible future challenges. It’s not all bleak, though: commodity and labor cost pressures are starting to ease, meaning menu price increases and their effect on average guest checks are projected to moderate this year. Nonetheless, inflation remains a primary concern for restaurant owners according to a survey conducted by TD Bank. In response, some restaurants may be tempted to implement what would appear to be the most logical solutions, for example, cutting labor costs and/or raising menu prices, without exploring more advantageous alternatives.
How Restaurants Can Combat Rising Food Costs Finding the right balance between raising prices and maintaining customer loyalty is crucial. The brands performing at the top of their segment through times of economic uncertainty have one thing in common: they focus on value. On the surface, you might think changing portion sizes or menu prices will work in your favor. This shortcut doesn’t take into account why customers invest in your brand. If you’re known for having the crispiest chicken but switched to a more cost-effective flour vendor, you’ll see the negative financial impact of that change and its negative impact on your online restaurant reviews and future guest traffic. It's the context feedback data provides that reveals what matters most to your guests so you know exactly where you can and can’t cut corners. For instance, Black Box Intelligence data shows that over the course of three years, full-service and limited-service restaurants with the lowest check growth had better traffic, guest sentiment, and customer retention. Of course, not all the elements that influence average check size are within your control. But what is? Understanding what your customers are looking for when they’re under their own set of budget constraints. Consumers are trading down when making dining decisions, putting perceived value and quality at the forefront of their research. Larger brands often have well-established reputations with sizable loyal customer bases. Customers may be more willing to pay higher prices for the convenience and perceived quality associated with a recognizable brand. Larger brands may also benefit from economies of scale, meaning they can purchase ingredients and supplies in larger quantities at lower prices, reducing their overall costs. If you’re an emerging or medium-sized restaurant brand, you need to identify the best alternatives and power informed decision-making. As consumer preferences continue to trend toward budget-friendly dining options, there are certain risk-free tactics you can tackle to get ahead: Fine-dining and full-service restaurants should follow a similar model to their quick-service counterparts: bundles and limited-time offers. People are more likely to take advantage of a deal when it seems like they’re getting something extra for their money. Full-service restaurants can also implement loyalty and rewards programs to offset the impact of rising menu prices to position their brands as a budget-friendly option. This incentivizes repeat business among loyal customers and helps build a strong customer base. Besides, customer loyalty programs provide valuable data into consumer behavior, preferences, and spending habits. Offer a set-price menu with a variety of courses, giving customers the quality of a fine-dining experience at a better price. Additionally, create promotional campaigns to encourage customers to come back during traffic lulls. As long as you’re able to identify what part of the customer journey in your restaurant has the greatest impact on your sales and traffic, you’ll be able to keep your team focused on the right areas to improve.
The Bottom Line: Maximize Your Customer Feedback Analysis To effectively combat the challenges of inflation, start by not just capturing customer feedback data but transforming it into insights needed to make informed decisions. It’s essential to note that what works for your competitors may not be the right fit for you. To clarify, data refers to raw and unprocessed information that lacks context and interpretation. Insights, on the other hand, are the meaningful and actionable conclusions drawn from analyzing and interpreting data. Insights provide valuable understanding, meaning, and knowledge to support problem-solving or discovering patterns, relationships, and trends within the data. It allows us to understand why something is happening and how to take action. The problem is, however, without properly digesting the raw numbers, the data you're accumulating is mostly meaningless. If you're a smaller brand, the key to overcoming inflation woes is focusing on what your customers value most. Having the right data set can help you find the correlation between what customers want, what you can provide, and how you’re delivering on their expectations. It is therefore imperative you have a process in place to help your team understand and effectively act on all the feedback data piling in from multiple sources.
Insights Drive Informed Decisions By comparing your restaurant's sales and traffic performance to industry, segment, and designated market area benchmarks, you can identify areas where you may be underperforming and take steps to address these issues. For example, you can optimize pricing and check growth by keeping tabs on check size trends and follow the impact local price change has on sales, traffic, and guest sentiment to maximize margins. Additionally, having access to workforce analytics and insights ensures that you stay on top of the trends that help you remain competitive across local markets. Use these insights to increase employee satisfaction, reduce turnover, and thus, as we pointed out earlier, elevate your guest experience. Even small improvements in hiring, onboarding, and managing workforce can result in significant return on investment. If your customer satisfaction is lower with service than it is with ambiance, retaining a motivated and skilled team will be crucial for your restaurant to operate efficiently. In fact, our research shows guest net sentiment improves with less employee turnover. Last, but certainly not least, guest sentiment and review sites remain key drivers of year-over-year increase in guest traffic. Gathering direct and indirect customer feedback, or omnichannel feedback, gives you a comprehensive view of the guest experience to target areas of improvement. In other words, you can gain invaluable insights into guest preferences, behaviors, and pain points and can uncover trending topics that can influence new products, services, and experiences. If you’re interested in learning more about omnichannel data collection, check out “ The Ultimate Guide to Direct and Indirect Feedback,” where we discuss the different types of feedback, examples for each, and the exact steps you can take to ensure your feedback makes sense and is actionable.
