As major brands leverage their scale to price below inflation, smaller brands find themselves in a more difficult position, forced to be creative. Growth-stage brands accustomed to lower prices in smaller markets are forced to contend with geographic price variations as they plan to expand into denser areas.
In an interview with PYMNTS, Don Varady, co-founder of Clean Eatz, a health-focused coffee shop chain with nearly 70 locations and more on the way, spoke with PYMNTS about how concerns about inflation change as the company expands.
“We’re looking into the idea of hiring someone to come in and review the menu,” he said. “They can do a menu analysis by zip code, which is something we’ve never done, because we’re so young, we’ve never really had to do it. We’re looking into that, because we’re expanding into more major metro cities, where our price points should probably go up a little bit based on cost of living, etc.
city by city
Currently, the chain’s location map shows almost as many existing stores as upcoming ones, and some of these upcoming locations are in metropolitan areas where the company does not yet have a presence.
Prices differ wildly between US locations, and these disparities can be seen both in the data and anecdotally.
“In the area that I’m in, I’ve noticed that the menu price hasn’t really changed that much,” Varady said. “I’ve been to other places where I’ve seen a change. We were just in Denver and… the prices there have been inflated a lot.”
Certainly, the cost of living variation from state to state can be dramatic. Results of a survey by the Council for Community & Economic Research found that the 2021 average annual cost-of-living index in the most expensive state, Hawaii, was 2.3 times the average annual cost-of-living index in the least expensive state. , Mississippi.
The calm before the storm
Varady noted that, so far, inflation has not been a big problem.
“I do not think so [inflation has] really hit us yet. I think she will,” she said. “We’ve been able to do things on the back end with some of our product cost without having to increase menu prices.”
He cited the example that the company has been swapping paper products with the chain’s logo for non-logo alternatives, allowing the company to cut costs without increasing prices for consumers.
In an interview with Karen Webster of PYMNTS last month, andrew robbinsCEO of Software as a Service (SaaS) Customer Experience Management (CXM) solution provider Paytronixhe noted that inflation has yet to significantly dampen consumer-side demand, making it a much less pressing challenge for now than staffing shortages.
“That’s not what [operators are] worried right now,” he said. “It’s all about the work.”
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Plus, for now, restaurant inflation is actually less high than price increases in other food categories, meaning restaurants don’t necessarily have to worry about consumers turning to grocery options to ease their worries. for the costs.
According to data from the most recent edition of the US Department of Agriculture’s (USDA) Economic Research Service (ERS) Consumer Food Price Index, updated on March 25, food prices outside the household (ie restaurants) increased by 0.4%. in February, less than a third of the increase observed in the prices of food at home (ie, groceries), which amounted to 1.4% in the same period.
However, restaurants are likely to see larger increases in the coming months, with the ERS predicting that out-of-home dining prices will rise more over the course of 2022 than in-home dining, with restaurant prices increase by 5.5%. to 6.5% and grocery prices are expected to rise 3% to 4%.
the road ahead
One of the ways the company is looking to anticipate and mitigate the damage of this upcoming inflation is through changes to the menu, reducing the total number of ingredients used in all items, which will come into effect.
“Let’s say we have 30 ingredients on our menu,” Varady said. “They’re going to cut it down to 20 without losing the menu options, so we’ll be using some of the same ingredients in different menu items, which I think will help.”
Research from the PYMNTS Main Street Economic Health Survey, created in collaboration with Melio, which was based on a survey of 532 US small and medium-sized businesses (SMEs) conducted in January and February, found that inflation it is the top-ranked hurdle that these companies are concerned about moving forward. Twenty-three percent ranked inflation as their number one challenge and 54% expressed concern about inflation in general.
“I’m not going to be surprised if prices go up with a lot of restaurant chains, with the supply chain issues that everyone is experiencing and inflation,” Varady predicted. “I just haven’t realized it’s a really big problem yet.”