According to Restaurant Hospitality, beef prices are at an all time high, with beef supplies at their lowest point since 1950. This at a time when beef sales in the form of the all American hamburger have hit near record sales. In the recent few months, I've developed Menu Matrix analysis on a wide range of restaurants, and I can tell you first hand, there are a lot of restaurant operators seeing their margins erode. Sadly, unlike other retail businesses, restaurant operators are not quick to make adjustments to their menus, and many will try to ride out the fluctuation in beef prices.
Because the source of supply for beef is historically low, mostly due to weather, record high beef prices could last through 2015. And if you think about it logically, with the drought hitting the American southwest at a time when world beef consumption is up, 2015 may be optimistic for a price drop.
Here are 5 things you can do right now to protect your profits without loosing all of your customers in the process.
1. Diversify Your Offering. Of course there is no substitute for an all beef burger, but there are alternatives. We have helped restaurant operators introduce a wide range of burger style sandwiches, all of which are delicious and don't require beef. If you're 5 Guy's, you're really stuck, because your menu centers around beef burgers. But most restaurant operators have a much wider range of options they can introduce. Just make sure the product tastes great, and offers relevance to your brand.
2. Take Incremental Price Increases Over Time. And don't worry too much about food cost percentages at this point. It's likely your burgers will be in the high 30's for a while, and perhaps beyond if the weather doesn't change. And don't do it all at once, either. Take the price up in small steps over time. Keep in mind, changing your menu, while it can seem expensive when you increase prices every few months, or weeks, is still much less expensive than having low margins on a cash cow in your business.
3. Mental Anchor. Consumers are hard-wired to rationalize around money. Take advantage of this mind set by offering an enormous, expensive burger made with very expensive, outlandish beef. Make a $25.00 or $50.00 burger of some kind. In this way, when you launch your $12.99 1/3rd pound burger, the price will seem lower by comparison.
4. Keep A Close Watch On Prices. And make buys when beef goes on sale, if it goes on sale. If you notice your prices spiking, put something else on sale to take pressure of your beef products for a time. Consumers will likely gravitate to your beef items when they know the price is high at the grocery store and your restaurant has not kept pace. So you'll have to be diligent. And don't be afraid to take price increases every few weeks if you have to. Hey, you don't see a gas station trying to ride out the gas price spike, do you?
5. Focus On Plate Contribution Rather Than Percentages. Many of the most successful restaurant operators I've worked with in my career have had 40% food costs or more. Mostly that's because those restaurant operators don't worry too much about the food cost, but instead shift their focus to how much money they can take to the bank when they sell an item. As your beef prices increase, keep your eye on the amount of money you can take to the bank, rather than trying to protect your food cost percentage. You'll have a much easier time maintaining your sanity, and you'll still make money in a time when many of your competitors won't.
To get a free analysis of your menu and what an engineered menu can mean for your business, reach out to HotOperator® here!