Whether ordering dairy products from wholesale distributors or produce from local farms, you may have noticed that everything is more expensive. Inflation has a tremendous impact on the food industry, directly affecting food prices. The increase in costs influences the type, quantity, and quality of foods served at establishments and how much operators are willing to spend. While moderate inflation is essentially good for the economy to grow and remain healthy, the effects of too much inflation are hard to ignore. And as the cost of living increases, so does the cost of ingredients and menu items.
What Is Food Inflation?
Inflation is the rise of prices that causes a decline in the power of the consumer and producer to purchase goods over time while all other factors remain constant. Food inflation is the rate at which the prices of food items increase. Numerous factors can impact the food supply which affects prices. It’s vital to look at the increase in prices and the increase in the median income compared to food costs.
What Is Causing Food Inflation?
The U.S. Department of Agriculture has recorded the overall consumer price index of food prices being 10.1% higher than in May 2021. And the inflation expands beyond just products within the aisles of grocery stores and columns of restaurant menus. It also affects the materials used for packaging these products such as aluminum for canned goods and beverages.
COVID-19 & After Effects
During and following the COVID-19 pandemic, the supply chain has seen many disruptions, making it challenging for farmers and manufacturers to receive the necessary supplies. Because of these interruptions, many plants and manufacturers had to shut down for an extended period of time or permanently.
Labor shortages have influenced the increase in food prices. With fewer truck drivers and employees to serve customers, it's difficult for operators to provide the service they did pre-pandemic. Higher employee wage rates also tend to be reflected in raised menu prices, causing a strain on business and customer relationships.
Agriculture & Severe Weather
Extreme weather conditions are the main concern since it's a factor that affects the production process from the very beginning. Natural circumstances can be damaging to crops and essentially limit the overall supply. Related to agriculture, the fertilizer shortage also negatively impacts the quantity and quality of produce. With lesser-quality items, farmers and manufacturers wound up with either a smaller supply or a moderate supply but in inadequate conditions to be sold. A smaller selection of products leads to even higher prices.
Government Policies & Conflicts
In some countries, export restrictions have been put in place to keep their economies on track towards reducing potential supply shortages, retaliating against import controls, or protecting domestic industries from more influential foreign competition. The U.S. particularly implements export controls to preserve national security interests and advocate for foreign policy objectives. Conflicts limit the production and exportation of products and are especially harmful to the regions involved in the conflict that other economies depend on for resources.
Essential Foods Affected By Inflation Rates
Within the rise of categories like food, gas, or housing, specific ingredients have significantly increased in price compared to other items. Essential ingredients are becoming more difficult to purchase with the continuous spike in price tags. The following foods have had the highest price increase due to inflation.
- Beef: 16%
- Milk: 13.3%
- Eggs: 11.2%
- Butter: 12.5%
- Chicken: 13.4%
- Fresh fruits: 10.1%
- Fresh veggies: 5.9%
- Rice, pasta, cornmeal: 9.3%
- Frozen & freeze-dried prepared foods: 14%
How Is Inflation Affecting Restaurants?
Many restaurants have had to raise menu prices to more directly align with the increased costs of gas, labor, food, supplies, and other aspects vital to maintaining a foodservice establishment. After the reign of quick drive-thrus and contactless delivery of COVID-19, customers and businesses are becoming more hesitant about spending on gas. Fast-food restaurants have seen a decrease in drive-thru traffic, while companies offering delivery services have implemented additional fuel surcharges on orders to balance the extra costs. Overall, dine-in restaurants have also noticed a decline in guests. Inflation has forced consumers to reprioritize their income to focus on the essentials, meaning that extras — like eating out — are being cut down.
Who Is Directly Affected By Inflation In Restaurants
Although inflation is affecting the average consumer, and foodservice businesses, it's vital to highlight the rise in prices on the people involved within the food industry. From the establishment owners to customers, the following list describes how everyone is experiencing the repercussions of the price hikes:
- Restaurant patrons: The attempts of businesses to offset inflation by raising menu prices negatively impact customers as it just passes down the inflation to them.
- Commission-based restaurant staff: With a potential positive impact, tip or commission-based staff could see a pay increase. This depends on whether menu prices are raised and if the restaurant sales volume remains constant or rises.
- Salaried restaurant staff: Because of the external rising costs of gas, food, and shelter, salaried staff could be negatively impacted if salaries are not adjusted to the inflation.
- Restaurants/owners: An increase in input costs and lower profit margins serve as a negative impact not only for restaurants but for the owners themselves.
How To Adjust Your Restaurant Based On Inflation
Many foodservice businesses had to close down due to the impact of inflation while still recovering from the effects of the COVID-19 pandemic. Other establishments needed to get creative and innovative with how to handle the circumstances without running the risk of shutting down. In an effort to accommodate your business to the impact of inflation, consider the following options:
- Modify menu items to improve profitability: Combine popular main dishes with less popular sides to help move items that aren’t ordered as much.
- Find better vendors and suppliers: Search for options that may have more competitive prices to either make the switch or be able to renegotiate with your current vendor.
- Cut down on extra expenses: Take note if there are items you don’t use very often or at all that can be left out of future purchases. The same can be done with expensive food items that don’t seem to hold popularity among patrons.
- Consider raising prices: A rise in prices could help balance out inflation but could strain your relationship with customers.
Food On The Rise
Although food prices are on the rise, the most relevant factor is whether the purchasing power of consumers has changed. While some inflation is ideal for maintaining the balance of the economy, a spike in inflation for food, gas, labor, and housing — such as the current case — throws the economy off balance and impacts businesses and consumers alike. With the current state of the food industry, operators need to make the proper adjustments to continue to provide patrons with exceptional service without impacting their net profit.