In the face of challenging times, the restaurant industry grapples with relentless forces, from soaring ingredient costs driven by food inflation to the ongoing struggle to hire new staff amidst elevated wages. These hurdles threaten to erode restaurant profitability, making proactive measures essential for survival.
Esplanda's research reveals that the Consumer Price Index (CPI) for food away from home (restaurants) rose to 8.8 percent YoY in March 2023, marking a 0.6 percent MoM increase for the third consecutive month. In contrast, the CPI for food at home (groceries) experienced a 0.3 percent MoM decline, reaching 8.4 percent YoY – its first decline since September 2020. Notably, the Gasoline index fell 4.6 percent from February to March 2023, a favorable factor influencing consumer restaurant spending.
Examining past inflationary periods and economic recessions, data indicates a trend where consumers opt to trade down to more value-focused dining options rather than completely withdrawing from restaurants. The resilience of limited-service operations during these times emphasizes consumers' inclination to trade down rather than out.
Esplanda emphasizes the importance of optimizing sales channels and controlling costs to capture this trade-down phenomenon and safeguard restaurant profitability. The strategies involve adapting to evolving consumer expectations, leveraging historical data on consumer sentiment, and providing value-focused options.
Rising food inflation, coupled with the impact of volatile fuel prices, creates a challenging scenario for restaurant profitability. Higher ingredient and labor costs, paired with weakened consumer spending, pose a threat. Esplanda cites research from Technomic, indicating that every $0.50 increase in gas prices results in a $68 billion impact on consumer spending. The recent decrease in gas prices offers a positive note for the restaurant industry.
Survey data from Reuters and Ipsos reveals that over half of Americans (54%) consider rising gas prices when deciding how to spend their money on meals at restaurants. The most impacted consumer spending buckets due to rising fuel costs include restaurants (54%), entertainment (49%), home improvement (47%), and vacations (46%).
In conclusion, Esplanda's comprehensive guide provides valuable insights and actionable strategies for restaurants to navigate the complexities of food inflation and protect their profitability. By understanding the current landscape, historical patterns, and consumer behaviors, restaurants can position themselves to thrive in the face of these challenging economic conditions.