Governments around the world regularly measure the rate of price change in all industries, including the restaurant and grocery sectors. As restaurant operators, you can use this data – known as food inflation metrics – to compare price changes in your organization with price changes in the overall restaurant and grocery industries. It can also shed light on the competitive landscape.
In Canada, Statistics Canada produces two metrics: Food Purchased From Restaurants (aka: Food Away From Home or FAFH) and Food Purchased From Stores (aka: Food At Home or FAH). Food Purchased From Restaurants measures the price of eating out, from quick-service to fine-dining. Food Purchased From Stores is the grocery index. It captures food purchased from grocery stores (or other food stores), and food prepared by consumers on trips.
Both indices provide important data for the restaurant industry. Reviewing restaurant food inflation data for your region helps you understand where your price changes fit among traditional restaurant competitors, while grocery food inflation tells you if you’re in line with non-traditional competitors, like the refrigerator. But while it’s important to pay attention to these statistics, keep the following tips in mind as you review them.
Look at restaurant food inflation data as closely as possible
It’s important to look at both the overall index, and the specific data for your region and segment if it’s available and appropriate.
StatsCan provides this data monthly at the provincial and national levels; inflation data is not available on a more local level.
In addition to regional figures, you can also examine the figures for your segment of the restaurant industry. StatsCan breaks down the restaurant industry into the following segments: table service; fast food and take-out; and cafeterias and other sites.
Understand how your organization might affect the index
If your organization is the dominant player in a segment or region, you may want to look at a broader view of the indices. Otherwise, if you only look at your segment, you’re making comparisons in large part to your own organization, which isn’t very helpful.
The information may not capture the restaurant down the street
While the indices break down by region and segment, they may not be as detailed as you’d like. A set basket of goods are shopped each month and you don’t know which products are included, how often the products are switched out, or if a new product or a brand-specific item is included.
For example, we might see a smaller province’s restaurant food inflation grow tremendously over a few months, much more so than other provinces, because there are fewer restaurants to sample. An example of this occurred in the United States recently when one restaurant in a major metropolitan market had a change in ownership, and with that raised prices dramatically. Because this metropolitan market is a smaller subset, those price changes made a big enough impact to change the index.
Shop your competitors
If you want to know for certain where your competitors are priced, you have to shop them yourself. This tactic also tells you if competitors are doing something to undercut your prices, if they are charging the same, or if they are making price changes before or after you. And you can’t rely on the prices a chain advertises because those are often national ads and many local franchisees operate autonomously.
Check grocery inflation
Although we think of restaurants generally competing with other restaurants, grocery continues to add new take-home offerings like deli sandwiches, rotisserie chicken, pre-made salads, etc. While your price changes might be competitive with other restaurants in your area, it’s also good to have a pulse on where you stand versus the grocery store.
Even with these cautions, these indices are the best publicly-available data for the latest on industry food inflation. Knowing what is going on competitively can help you better gauge what’s realistic as far as combating cost pressures, like minimum wage, with price increases.
For example, the national forecasts for real growth provided by Restaurants Canada’s senior economist, Chris Elliott, are 2.7 percent for 2016 and 2.4 percent for 2017. If you need to increase prices more than 5 percent, for example, to offset upcoming cost pressures, this data signals it will only be achievable if your restaurant can sustain additional price increases based on your customers’ willingness to pay. Depending on your perceived brand value, you may have to look to other areas of the business to offset those pressures (such as attracting more customers, decreasing waste, or altering staffing levels).
The best way to know if you’re doing a good job managing menu pricing is to review transactional data so you understand how pricing impacts customer traffic and how it affects customer spending at your restaurant.