15 Jun 22 / Blog

How inflation is affecting restaurants, and how to tackle it

Inflation rates in Ireland continue to rise, so you may be asking yourself what does this mean for the hospitality sector? In April, we’ve seen the annual inflation rate rise to 7% in Ireland, which is a 22-year high.
Inflation measures how much more expensive a set of goods or services has become over a certain period, it is usually measured over a year.
Inflation can occur when there is an increase in production costs, like raw materials or wages. This is called cost-push inflation. The increase in production costs has a knock-on effect on suppliers as they often raise their prices to satisfy their profit margins, which then leaves the burden of higher prices on the end consumer.

Demand-pull inflation occurs when the demand for specific goods or services is greater than the economy’s ability to satisfy those demands. 

Inflation Definition

The reason behind the restaurant price increase

Whether your work in the hospitality sector or not, you may have still noticed food prices in Ireland creeping up over the last year. According to the CSO, annual food price inflation grew from 1.5% in December to 3.5% in the 12 months to April. Restaurant prices have notably gone up alongside rent, fuel, grocery prices and more.

Inflationary pressures

The price surges in the Irish food sector have largely been due to cost-push inflation. From a restaurant’s perspective, it’s costing them more to purchase the same quantities of food and beverage from suppliers. For the restaurant to continue to hit their desired gross profit margins, they must increase their menu prices, leaving the customer to pay the higher prices for menu items.

Inflation rates

Cost pressures


Aside from the cost of purchasing food and beverage from suppliers, restaurants must factor in labour costs, food waste, and other operating costs. Some restaurants don’t have an efficient procurement software system in place, meaning they don’t have full visibility over their waste and expenditure. This results in the restaurant having to estimate when it comes to these figures, leading to inaccurate food reporting.

Without full visibility over your expenditure, it can be very hard to pinpoint where exactly the price increases are coming from. Meaning it’s even harder to come up with a good solution for this problem. Having an intuitive purchase-to-pay system, such as Access Procure Wizard, gives you full visibility over every aspect of the procurement process, from placing orders to serving customers.

Procure Wizard helps customers tackle inflation by putting customers in control of price increases. All price changes from your dedicated suppliers require approval by you, the user. The system will highlight where savings can be made within your nominated supplier product listings. Users can then make changes to protect their bottom line.

This system gives you full visibility over your expenditure and has been proven to cut expenses for customers, increasing GP by 3 to 5%.

Should I raise my restaurant prices?


If you have been experiencing consistent price hikes from suppliers for food and beverage, it may be time to raise your restaurant prices. That is, of course, if your profit margins are suffering as a result of this. Raised prices could be the solution to achieving your desired profit margins on various dishes. However, it is important to be careful as raising prices too high may result in a decrease in demand.

Although inflation is inevitable, it’s important to look for alternatives to simply increasing prices, such as offering a daily specials deal to boost sales. There are plenty of ways for restaurants to achieve their targeted profit margin without leaving the price burden on the customer. The most common way is for restaurants to purchase from different suppliers with better prices.

During the Starbucks Q1 call in February, former CEO Kevin Johnson said the company has “taken pricing actions” in January and has “additional pricing actions planned through the balance of the year.”

Menu Engineering

Menu engineering using an intuitive system is the way forward in terms of budgeting and forecasting. The days of having a giant folder with all recipes, food costs, ingredients, menu prices, and allergen information in the kitchen are becoming a thing of the past.

With Access Procure Wizard, building a menu has never been easier. All menu prices, recipes, and profit margins for each dish are loaded onto your desired menu. The system automatically updates any price changes, and this will carry over to the gross profit margins, meaning you can that when you build a menu on Procure Wizard you can see exactly how much each item costs, and sells for its gross profit, ingredients, allergen information, and more.

If there are any changes to dishes, ingredients, food costs, or anything else, the system will automatically update giving you your new forecasted profit margins.

FAQs

Why are prices going up in restaurants?

Prices are going up in the restaurant industry due to inflation. Menu prices across Ireland have seen price increases as a result of the ongoing inflation we are experiencing.

How much should a restaurant raise prices?

Restaurant prices should be kept at a level that allows them to hit their desired GP margins. If costs on these menu items rise, then restaurants may have to raise prices to continue to hit profit targets.
For example, if a burger and chips cost a restaurant €5 to make, and they sell it for €8, they are achieving a % profit margin on this dish. If prices from their supplier rise and it now costs the restaurant €6 to make the same dish, they will decide to raise the price of the burger and chips dish to € to achieve the targeted profit margin. However, if they raise the price of the dish to €12, the demand for the dish is likely to decrease.

How can we solve the inflation problem?

To solve inflation the government can increase taxes and cut spending. This improves the government’s budget and reduces demand in the economy.

What food prices are rising the most?

The Central Statistics Office (CSO) has provided the following inflation rates on common grocery store items over the past year based on market data, which shows the substantial increase in grocery shopping that individuals have been experiencing over the past year:
Bread +8.1%
Pasta products and couscous +11.8%
Poultry +7%
Fresh whole milk +8.9%
Eggs +6.6%
Butter +6.3%

How much profit should you make in a restaurant?

Each restaurant has different profit targets so there is so figure on how much profit you ‘should’ be making. Restaurants usually have a profit margin between 3 and 5%. In Ireland, restaurant owners earn on average roughly €23,000, however, it can be much higher.