As you’re planning your restaurant’s budget for the coming year, it’s important to take into account one critical factor: food inflation. While food prices have dropped somewhat since their peak earlier this year, they’re still considerably higher than in previous seasons.

Curious about what’s causing this prolonged increase? You’ve come to the right place. We’ll examine the drivers of higher food prices and identify a few ways your restaurant can cut food costs until inflation eases.

What’s impacting the price of food?

Food costs have been on the rise in recent years. In May 2024, food prices were 2.1% higher than they were in May 2023. The Consumer Price Index (CPI), which measures inflation, also shows an increase. The Consumer Price Index for food increased by 0.1% between April and May 2024.

A number of factors are driving this spike in food price inflation:

• Overall inflation rates. Inflation is up everywhere, which impacts the food industry. The CPI for all items rose by 3.3% between May 2023 and May 2024.
• Supply chain disruptions. The Russian war on Ukraine continues to impact the world’s supply of foods — wheat, in particular. Before the war, Ukraine was in the top five wheat exporters; since the invasion, prices have risen by about 2% across the world. And while pandemic-related supply-chain disruptions have largely eased, many food suppliers have failed to roll back price increases accordingly. The resulting grocery inflation impacts consumers, fine-dining establishments, and fast-food restaurants alike.
• Foreign import tariffs. The U.S. government imposes tariffs on foods that are imported from certain countries, including China; this tends to result in higher prices for consumers. As the trade war with China wages on, it’s safe to expect ongoing issues.

If your restaurant has been forced to increase prices in response to food inflation, you’re not alone. The Consumer Price Index for restaurant purchases was 4% higher in May 2024 than it was the previous year. Although the rate of inflation is slowing, it’s still expected to rise throughout the year. To attract more customers, you may need to find ways to manage expenses and introduce convenient services such as online ordering.

How to cut food costs for your restaurant

With food price inflation here to stay — at least in the near future — many restaurant owners are exploring ways to cut costs. While this approach won’t make up the difference completely, it can help soften the blow.

As you investigate different solutions for managing high food costs, keep in mind that it’s not a one-size-fits-all endeavor. The right strategies for you will depend on the nuances of your restaurant operations.

Improve your inventory management

Your restaurant’s inventory management system has an outsized impact on food costs. An effective system ensures you have an adequate supply of ingredients on hand to fulfill orders. It also reduces overstock, which helps prevent food from expiring before the kitchen uses it. Spoiled food is a waste of money; by eliminating it, you can automatically cut food costs.

If your restaurant has a high volume of spoilage, it’s probably time to refine your inventory management practices by:

• Implementing software. The latest inventory management software connects to your POS to access past and current sales data; it can help you order food accurately to reduce unnecessary expenses.
• Reducing stock levels. Excess inventory takes up space, elevates your food costs, and increases the risk of spoilage.
• Using older ingredients first. Successful restaurants use a first-in, first-out (FIFO) system. Train your kitchen crew to use the oldest foods first. That way, they’re less likely to go bad.

Create and stick to a budget

When food inflation is high, it’s more important than ever to avoid overspending in other areas of the business. That’s where a budget comes in; it helps you track expenses, account for fixed costs, and control your cash flow. Not sure where to start? A budget template can provide a useful framework.

Once your restaurant budget is complete, make sure to follow it closely. Track your spending on a weekly basis, and note if expenses are rising in any part of the business. When you’re aware and engaged with your restaurant’s finances, it’s easier to keep costs in check across the board.

Make cuts to your menu

The bigger your restaurant menu, the more you’ll spend on ingredients. Switching to a more streamlined menu can help cut food costs immediately. Reducing the number of ingredients you need to keep on hand can also simplify your inventory management system and reduce spoilage.

Don’t make arbitrary cuts — let the data guide you. Here’s how:

• Eliminate low performers. Dig into your sales records. Are there any items consumers rarely order? These dishes should be the first to go.
• Analyze profitability. Calculate the profit margin on each dish. If you find items with razor-thin margins, check the sales. If the item sells well, examine the recipe to see if you can swap in cheaper ingredients. If not, consider pulling the dish. This will cut food costs and help you make more money.

Embrace local ingredients

When you order from local farmers and suppliers, the food doesn’t have to travel far to reach your restaurant. Shorter delivery distances reduce fuel and delivery costs, which can have a significant impact on food prices. You may even be able to order smaller quantities to eliminate spoilage.

Going local has other benefits for your bottom line. It’s a great way to bring in more business — after all, 42% of U.S. diners aged 50 to 64 and 33% of people aged 18 to 29 prefer to buy food that’s grown locally. Plus, with a smaller window between harvest and delivery, farmers can pick food when it’s ripe rather than several weeks before. This increases food quality, boosts customer satisfaction, and inspires repeat business.

Revisit your menu pricing

As food costs rise, restaurants everywhere are adjusting menu pricing accordingly. Increasing the price of one or more dishes can help prevent your food bill from eroding your profits.

Pricing changes are most effective when they’re strategic. Before you do anything else, take time to:

• Calculate food cost percentage for menu items
• Use menu engineering to analyze the popularity and profitability of each recipe
• Analyze competitor pricing

A comprehensive understanding of your menu and the market empowers you to make data-driven decisions and select the menu pricing model that’s best for your business.

Negotiate with suppliers

Food prices aren’t fixed; they’re determined by suppliers, which means they’re negotiable. One way to cut food expenses is to request more favorable terms from your vendors. If you have a history of regular orders, they may be willing to work with you.

There are a few ways to negotiate lower grocery prices:

• Consolidate your business. If you’re currently ordering certain ingredients from a variety of vendors, offer to give that business to a single vendor in return for a price cut. Even a modest discount can add up quickly over the course of a year.
• Agree to a long-term contract. If you’re confident in a supplier’s quality and reliability, offer to sign a longer contract at lower prices. The vendor gains a guaranteed source of revenue, and you benefit from the cost reduction.
• Maintain a positive relationship. Suppliers don’t want to lose customers who communicate clearly and pay invoices on time. If you have a positive track record, the vendor may be willing to give you a modest price cut merely to keep your business.

Reduce food waste

Food waste can be a big contributor to high food costs. After all, the food your restaurant throws out almost always translates to wasted money.

As you try to cut back on wasted food, consider these three areas:

• Spoilage. Food can spoil as a result of inefficient inventory management, a drop in customer demand, or disorganized storage and usage practices.
• Inefficient food prep. Without optimized preparation, a restaurant kitchen can waste a great deal of usable food.
• Customer waste. While you can’t control what customers leave on their plates, you can reduce it by cutting portion sizes or offering multiple sizes.

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According to inflation expectations, food prices are likely to continue rising. Optimizing your operation and finding ways to reduce food costs can build a foundation for a strong, long-lasting restaurant business.

While you’re at it, take steps to control costs and boost revenue in other parts of your restaurant. Take delivery orders, for example. With Grubhub, it’s possible to expand your service offerings and meet customer demands without expensive infrastructure upgrades. Our affordable price packages include access to our cutting-edge platform, so you can boost sales and increase revenue without breaking the bank. Are your customers interested in convenient and professional takeout and delivery? Get started with Grubhub today.