Value proposition

Amid inflation, restaurants scramble to protect value proposition

Even though we came out at the height of the pandemic, life hasn’t quite returned to “normal”. With supply chain bottlenecks, labor shortages and the rising cost of fuel, which affects the cost of shipping all goods, restaurant chains and independents face price spikes at the counter and worry about passing those costs on to customers.

It’s, as Layne’s Chicken Fingers CEO Garrett Reed calls it, “A perfect storm of everything.”

Reed and Layne COO Samir Wattar recalls that this climate started to brew in mid-2021 as many supplies were behind schedule and demand was high, and it hasn’t stopped since. . “I wake up every week to letters from manufacturers – ‘We’re taking a raise in 30 days or 15 days, or your next bid is going to be increased by X'” Wattar said. For example, the company was paying $2 a pound for chicken fillets. This cost in early summer was up to $3.70. Fries and soft drinks also cost more.

“It was a fight to manage” Wattar adds. “We take price increases, but how much can we pass on to the consumer? When are you going to shut yourself out of the market? We started looking at managing base costs rather than just managing food costs and labor costs. This is at the heart of the P&L. [And] other lines of the P&L that you can manage and get a tenth here, a tenth there, and you’re trying to survive.

For Layne franchisees, the number one priority is to have a product available. The company sells a protein (chicken fillet), a side dish (fries) and the packaging. With over 70% of the chain’s business in the car, it’s important that the essentials are available.

“We took a price increase earlier this year,” Wattar said, noting that shipping costs across the country have increased by up to three or four times. “But we started to manage core costs, food and labor more together, and implemented a labor management system based on productivity versus percentages. We’re able to control it that way, instead of saying, “I want X% for food costs and I want X% for labor costs.” Let’s combine them and manage them together. Then look below for the main costs, see what’s on the P&L and manage that – laundry supplies, cleaning supplies, chemicals. Try to save money there so you don’t cheat your client and overprice yourself outside of the market. »

Layne’s has taken an approach where it will not reduce portion sizes (“shrinkflation”) or make the customer feel cheated. It wants to remain fair to loyal users. Layne’s also notes that it has received little negative feedback from consumers, far less than even normal, which the brand sees as a sign that people are adjusting to the overall price increases surfacing in life. after lockdown.

“It’s refreshing because we’re fighting so many battles, and you really don’t want to fight your client,” Reed says.

Atomic Wings is another company that strives to keep its customers happy amidst the surge. During the lockdown, some brand sites saw business double, CEO Zak Omar said. Then a change came.

“I’m also a Dunkin’ Donuts franchisee, and it seems through [quick-service restaurant] the number of transactions has [recently] fell,” he said. “It’s the culmination of many things. Inflation, and many more people have less disposable income. Quick services also had to advertise about a 20-30% increase in our menus just because the cost of everything skyrocketed. »

Like others, Omar has been struggling with price increases at Atomic Wings. In late spring, a french fries manufacturer raised prices by 65%. The explanation given was that at the height of the pandemic, the company had not planted enough potatoes, so as demand remained high and supply low, prices rose.

READ MORE: Inflation sends restaurant customers looking for value

“Now they are playing catch-up, and it’s hard to play catch-up,” says Omar. “They had to raise their prices because the price of wheat went up, the price of transportation went up, all these external factors. We used to pay around $17 for a jug of oil to fill our fryers. Today we are paying $43 for that same jug. A store owner can only bend to a certain limit, right? They are franchisees, and I’m not just talking about my brand. I’m talking about any family store, any restaurant you go to, any restaurant you go to. Consumers really need to be aware that this is not Target, Walmart or Amazon.

Packaging costs have increased, and with a lot of packaging coming from overseas (such as plastic products and kraft boxes), a big bottleneck has arisen. “They were delayed for six months [in getting items into warehouses], so the price of the packaged goods, the price of just putting the food in the containers, has gone up astronomically,” says Omar. “Restaurants are being affected from all angles.”

Omar says Atomic Wings tried to be as innovative as possible. As of Q1 2022, its thigh wing now comes in two variations, a breaded thigh wing and a traditional bare thigh wing. He says the chain is profitable for franchisees and profitable for customers. “We can sell this as a combo for less than $10, and it’s a hearty meal,” Omar says. “You’re not going to sit there and say, ‘I wish I had more. It’s just enough for one or two people in fact, combined to eat there.

Atomic Wings wants to ensure that it remains a value-added product. “We pride ourselves on the quality of our food – we’re fresh, never frozen – so we’re not going to skimp on the quality of our meats or the quality of our food in general,” he says. “Our sauces have remained the same. We hope they can take advantage of some of these other products.

Atomic Wings also tried to find innovative prizes. “Let’s say we sell 10 pieces for $12.99. We can do an 8 piece combo or a 7 piece combo for $12.99,” says Omar. “We just have to keep up with the times, and if that means simplifying the menu, reducing the number of your parts, then that’s what we have to do. We don’t want to be $20 for 10 wings.

Tough economic times call for creative action. But eventually, something will have to give.

“What we are going through right now is very unsustainable,” Wattar said. “It can’t be like this for long.”

Omar believes financial relief from the current economic pressure won’t arrive until the second quarter of 2023, and much of that depends on gas prices, which started falling in July.

“All of these restaurants work with distributors to deliver the food to their restaurant,” says Omar. “They’re not going to eat that prize. They will pass it on. We try to minimize this as much as possible and not impose this cost on our customers. We try to eat as much as possible, and like I said, we come up with innovative ways to stay affordable.