How Does Restaurant Inflation Impact Brands?

August 10, 20222 min
Lauren Daniels photo
Lauren Daniels Tastewise

Inflation is here, and retail data abounds on how it’s impacting food and beverage. But what’s happening in foodservice, and how can brands provide for their customers *and* stay competitive in a quickly changing market?

What is Restaurant Inflation?

Restaurant inflation refers to the rising costs associated with dining out, which can be attributed to various economic factors such as increased prices for ingredients, higher wages for staff, and rent hikes. This type of inflation can significantly impact the food industry, as it may lead to menu price increases, thereby influencing consumers’ dining choices and behaviors.

Many food intelligence experts believe that restaurant inflation is a natural and inevitable phenomenon, as the food industry operates in a complex and competitive market. However, it can positively and negatively affect restaurants and consumers.

The Influence of Inflation on Restaurant Brands

We all know food prices are going up significantly, thanks to the uninvited guest that’s pushed its way into the party– inflation. The average cost of food in the US is up at least +10% since last summer, and top food categories are seeing increases even as high as 33%.

For context, the entirety of the three years prior only saw an 11% increase – and a big portion of that time was peak pandemic.

Thanks to global instability, the war in Ukraine, supply chain issues, strong demand, the pandemic, and a host of other issues, we’re dealing with inflation in a big way.

You’ve likely felt that in your own purchasing behavior as a consumer, and in your professional work as both your distributors and competitors raise prices, so you know that your customers are paying more for your products when they end up on the plate.

The big question is: do you know by how much? And how can you leverage that knowledge to stay competitive and agile as the industry (and the economy) continues to change?

The answer to that question lies in how you understand your consumers’ behavior. Retail data, often the focus of reports and analysis across the industry (and the news!) doesn’t tell the full story. ~50% of Americans eat out at least multiple times a month, and they’re spending significant money at restaurants.

Retail data doesn’t capture those occasions. If brands are solely using resources like the July CPI report from the US Bureau of Labor Statistics to understand what’s happening to their product, they’re missing a huge piece of the puzzle.

Let’s use the example of chicken. According to the CPI report, retail chicken prices decreased June – July of this year by -0.4%, while most of the rest of ingredient categories continued to increase in average pricing. You might see this and think, “great! Chicken, albeit marginally, is starting to resist the pressures of inflation!”.

By using the Tastewise foodservice solution, however, we see that 40% of the most-increased dishes at major American chains for that same time period involve chicken. That means across major American chains, decisions have been made to resist inflation losses by raising pricing on certain dishes – and 40% of the time, those dishes center on chicken.

That’s significant. If you’re a chicken distributor, this means that your foodservice customers are selling your product at higher prices than last month – and not at the stable rate we see from retail data.

To make it real on the plate: If we look at how chicken plays right now at McDonald’s, for example, we see a pretty big impact. A full 1/3 of McDonald’s locations have raised prices of McNuggets, the most commonly-increased-in-price dish at the chain, in the last month.

That means that thousands of consumers are spending more on McNuggets — in over 5,000 McDonald’s locations. If you just looked at retail data, you wouldn’t understand the strategic decisions that McDonald’s is making, and where.

Ok – we’ve established that chicken prices across retail and foodservice have their own trajectories.

If You’re Not a Chicken Distributor, What Can You Do With This Information?

The bottom line: no matter your category, relying on one data source to understand your customer is the wrong move. Today’s customers are complex, and their behavior is more dynamic than ever – and the picture retail data paints just doesn’t cut it anymore.

Incorporating foodservice data into your decision-making strategy is crucial; that’s true when the economy is changing, and it’s true as a basic tenet for strong strategies no matter the situation.

For example, when recipe development is guided by insights from foodservice data, it has a higher success rate and leads to more profitable products. When marketing campaigns are built with foodservice data in mind, the results are more powerful – and when sales teams leverage this data, they’re better equipped to drive strong distribution deals.

4 Ways Foodservice Data Can Impact the Way You Make Decisions During Inflation

1. Understand your consumers and how they experience the market right now

Today’s most successful brands know that centering their customers in their decision-making is non-negotiable — and the best way to get close to consumers is through data. Foodservice data adds an extra layer of visibility to your strategic planning.

2 Price your products competitively, and in a way that allows you to make changes with agility

When you’re looking to build new customer relationships for your product – or navigate relationships with your existing clients – pricing plays a big role. Give your sales teams the right tools to use in these conversations; if they know that pricing has gone up for certain dishes in certain types of restaurants, they’ll be able to adjust accordingly.

3. Tailor your strategies to different geographies

Your product’s behavior isn’t one-size-fits-all, and different restaurants in different places are going to engage differently. Small and medium chains in Richmond, VA, for example, are going to price dishes differently than their counterparts in Chicago, IL. You may know that instinctually, but you won’t be able to know what is going on without data – and how you can plug into it.

Evaluate compliance and identify challenges

Are your foodservice partners actually selling your product? How much are they selling it for? Did they recently take it off the menu because of a certain issue? Are your competitors taking up space in your market, and you need to adapt?

What can food intelligence do for you?