It’s an obvious point to make, but increasing sales is critical to running a successful full service restaurant. It keeps your profits healthy and your business lucrative.
But generating revenue is more challenging than it’s ever been. 🤯
Costs have been increasing across the board, for both restaurant operators and consumers. This means you’re spending more money to run your restaurant (on things like ingredients, utility bills, and staff wages), and customers are pinching their purse strings to reduce spending.
So how do you overcome these challenges?
You’ve come to the right place for answers.
In this article, we explore some of the main challenges facing full-service restaurants in the current climate. By the end, you’ll have a strong idea of how to tackle these issues head-on to keep your profit margins in good shape. 💪
What are the challenges facing full-service restaurants?
Let’s start by clarifying some of the main hurdles.
Inflation and slim profit margins
Inflation is one of the biggest challenges restaurants are facing right now. 19% of FSR operators in the US say that inflation is their top pain point, with 41% saying it’s an extreme or moderate challenge.
65% of food and drink retail businesses have also reported an increase in the price of goods and services from December 2022 to January 2023. The cost of some raw ingredients like (almonds and cocoa) are also getting more expensive.
All of these rising costs can seriously impact the gross profit margins of a full-service restaurant, which are already razor-thin as it is.
The more you spend on ingredients and raw materials, the less room for higher profit margins. And yes, you can increase prices, but 83% of hospitality operators are worried that increasing prices will alienate customers (more on this later).
The margins also change based on the type of restaurant.
Fine dining restaurants, for example, tend to operate on slimmer net profit margins, typically around 6-7%. Why? Because they typically prioritise quality ingredients and meticulous food preparation processes. Despite higher menu prices, this can impact profit margins.
Chain or mid-market restaurants usually have higher margins, mostly because they generally don’t source such high-quality and costly ingredients. Restaurants with multiple locations and a central production kitchen can also buy ingredients in bulk, bringing costs down and boosting margins.
Some food for thought 🤔 It’s not all bad news! November 2023 was the eighth consecutive month of falls in food inflation, down from 10.1% in October — the lowest it’s been since May 2022. The price of food and non-alcoholic beverages also decreased by 1.3% between June 2023 to 2024. So although prices are still high, they’re slowly coming down.
Reduced consumer spending
Economic and social factors, like the cost-of-living crisis, have significantly impacted the restaurant industry. One of the main issues is reduced consumer spending.
As household budgets tighten, people are dining out less frequently or opting for cheaper dining alternatives:
- Many diners are responding to rising costs at full-service restaurants by visiting quick-service establishments instead.
- Full-service restaurant traffic fell -3.5% from April 2022 to 2023.
- The out-of-home bakery market grows as consumers seek more affordable options.
With fewer people dining out or choosing cheaper alternatives, it’s harder for full-service restaurants to increase revenue and bolster margins.
Labour costs and scheduling
Labour costs rose earlier this year, with the minimum wage rising by:
- Just over 12% in Ireland
- Almost 10% for people aged 21 and over in the UK
This is a minimum 10% increase on your labour-cost line in your profit-and-loss statement. Coupled with the labour shortages we’re experiencing across hospitality, things have been tricky for restaurants on the labour front.
And on top of this, inefficient labour scheduling is also eating away at profits. For restaurant operators without a consolidated tech stack, it’s hard to optimise schedules in line with customer demand.
This means they’re more susceptible to overstaffing, which can make a huge dent in profits. If you have a quiet day and a full staff on the floor, you’re looking at minimal profits.
Some food for thought 🤔 Despite the challenging labour market, restaurants are hopeful about hiring and retaining staff. In fact, 38% of UK restaurant owners aren’t experiencing any labour shortages.
How full-service restaurants can combat these challenges
Now, let’s walk through some of the ways you can tackle these challenges to keep your gross profit margins healthy.
Track costs and prices in real-time
Keeping tabs on costs in real-time is one of the most effective ways to overcome the challenges of inflation. It gives you the insight you need to control your costs, identifying where you’re spending your money and how to reduce costs if necessary.
Think about your supply chain as an example. With real-time insights into supply chain costs, you can instantly pinpoint if prices change. Then, you can step in to either renegotiate with your supplier or find someone else.
It also gives you instant access to your profit margins. When you know how much ingredients cost (and how much you’re selling), you can see if your profits are healthy or if you need to make changes.
This is where technology can shine. With the right systems in place, you can keep track of your costs in real-time, and in a single location. This means you can easily keep track of spending and make sure costs are within your limits.
Nory success story 🥳 Before consolidating their data with Nory, Stephen Burns (Group Operations Manager at Rocksalt) spent a lot of time manually managing costs across different systems. Now, they can track costs in one location with full-service restaurant software to make informed decisions that boost the bottom line.
“I would’ve previously spent around 50% of my time trying to manage pricing from suppliers. Now, it’s a 10-minute job because I can see the price changes instantly, pick up the phone, and take action.”
Stephen Burns, Group Operations Manager, Rocksalt
Order inventory to align with demand
Inventory management is another key pillar of restaurant success. When done well, it means that you only order the ingredients you need to meet customer demand. As a result, you spend less money on ingredients you’ll never use (which also minimises food waste, so it’s a win-win).
It can also help you track use-by dates, improve food storage, and maximise ingredients across your menu — all of which ensures you use as many ingredients as possible before they go to waste. The more ingredients you can use, the better your profit margins will be.
Use a full-service restaurant software like Nory to access all these features. Our AI-powered analytics predict your inventory usage days in advance, creating accurate order guides and prep lists for your teams.
Some food for thought 🤔 Are you operating a central kitchen for your full-service restaurants? If so, you need Nory’s Automated CPU! Our software creates automated production schedules for CPK teams based on predicted sales and stock levels across all your locations. With one click batches are produced, packaged, and sent to venues.
Optimise labour schedules
Creating optimal schedules for staff can prevent overspending on wages during quiet shifts.
It means you schedule the right number of people to work each shift and meet customer demand. The customers have a good dining experience, and you don’t cut into profits by overscheduling staff.
You can find out more about creating demand-based schedules here.
Restaurant technology is an invaluable tool when optimising your labour costs.
With Nory, for example, our AI-powered system analyses historical data and external factors (like the weather and local events) that can impact demand. Then, you can create a schedule that meets customer demand without overstaffing.
The results?
Less spent on unnecessary wages and better profits for your restaurant.
Nory success story 🥳 See how Roasting Plant Coffee reduces labour costs by 18% in just two months using Nory. No more Excel spreadsheets or manual data consolidation — Nory centralises all the key data in a single platform! Now, Roasting Plant Coffee can see real-time data to create optimised schedules for their workforce, avoiding overstaffing to minimise costs and increase profits.
“I can see where our general managers are saving a huge amount of time making their rotas. It frees up their time to focus on other crucial aspects of their role.” – Kallie Kocourek, Vice President of the UK Market.
Increase menu prices (tactfully)
With inflation impacting so many aspects of restaurant operations, it’s pretty much inevitable that you’ll need to increase menu prices at some point.
But don’t worry — if done right, you won’t scare customers away:
- Don’t change too much at once. Upping the prices of your entire menu in one go can be jarring for customers. Instead, choose a few items to increase. Prioritise the quickest wins first, finding menu items that give you the best profit margins with the smallest price increase.
- Increase prices gradually. Raising prices gradually instead of at the same time can soften the blow for customers, and it’s less noticeable. For example, if you want to increase the price of your classic cheeseburger by 15%, consider upping it by 5% each month.
- Provide deals and offers. Running strategic offers is a good way to give customers more for their money while increasing your prices. For example, create loyalty offers that allow customers to collect points every time they buy from you. After collecting a certain number of points, they get a reward, like a free side or discount on their total bill.
Focus on menu engineering
Menu engineering involves strategically designing, pricing, and arranging your restaurant’s menu to maximise profitability and customer satisfaction. It can significantly influence the customers’ decision-making process and, ultimately, your bottom line.
For example, let’s say that you know your loaded nachos are the most popular starter on your menu. It also happens to have a hefty profit margin, so that’s a win-win.
To try and boost the sales of your nachos, you might place them at the top of your list of starters, perhaps highlighted in a different colour or with a ‘chef recommendation’ comment pointing to it.
These small tactics can draw a customer’s eye to this menu item, increasing the likelihood of ordering it and boosting your profits.
Again, technology is incredibly useful here. Nory’s full-service restaurant software can track ingredient prices, profit margins, and popularity of dishes to help you identify which items are the most profitable.
With Nory, for example, you can create gross profit targets on a menu or dish level. If you’re below target, we’ll let you know so you can increase prices or switch up the ingredients/suppliers to bring costs down.
Some food for thought 🤔 For fine-dining restaurants, menu engineering might not be the best tactic. Instead, you might take the opportunity to educate diners on the need for higher price points. For example, increasing awareness about:
- The benefits of fresh, locally sourced ingredients
- The impact of food processing on health and taste
- The need for sustainable ingredients to minimise greenhouse gas emissions
Adding this detail to your restaurant menu (or on your website and social media channels) can encourage diners to buy from you — especially because consumers are making more environmentally conscious decisions. 77% of consumers believe sustainability is important when buying food.
Improve restaurant operations and boost your bottom line with Nory
Inflation is having a knock-on effect across the industry right now. For full-service restaurants, it’s rising labour costs, increasing spend on ingredients, and reducing consumer spending.
But there are ways through these challenges. With the right technology and strategy behind you, you can overcome these hurdles to keep your profit margins healthy and your restaurant thriving.
FAQs about challenges facing full-service restaurants
What is a full-service restaurant definition?
A full-service restaurant is an establishment where customers dine in. They’re seated by staff, orders are taken at the table, and food and drinks are served by waitstaff. It typically offers a wider menu variety, a higher level of customer service, and a more formal dining experience compared to other types of eateries (like quick-service restaurants or coffee shops).
What’s the difference between limited-service and full-service restaurants?
Limited-service restaurants (also known as quick-service restaurants) primarily focus on quick meal preparation. They usually have a self-service kiosk for customers to order food themselves, or a speedy counter service to take orders as quickly and efficiently as possible.
