Tips for Managing the Costs of COVID
How to Gracefully and Strategically Pass Extra Costs Onto Customers
Most restaurants run a tight ship, with profit margins averaging in the 3-5% range. There's no room to absorb new costs. Leading up to COVID, many restaurants were already dealing with cost pressure because of a state and national support for increases in minimum wage. Then the pandemic came and threatened the survival of the entire industry.
As the most severe early months of the crisis are fading, many restaurants have been able to survive with the help of the government's Paycheck Protection Program, and by cutting operating hours and leaning on takeout business. But those surviving businesses are being hit with a new wave of costs - what you might call a delayed reaction or coming to grips with the real financial impact.
The second wave of Covid costs
Restaurants have been paying for the cost of safety adjustments, like masks and hand sanitizer. Unless you were forced to build a new outdoor seating area, these safety costs can easily be dwarfed by increases in food essentials like produce and dry goods. Suppliers themselves have to reconcile with the added costs caused by COVID. Maybe a crop didn't get picked because labor was on lockdown or travel was interrupted causing key shortages - the reasons are complex and they eventually ripple all the way up to the restaurant. As fall approaches, and as sales figures still lag, these are the big costs that threaten restaurants anew.
Covid Surcharge or Raising Prices: How to deal with the added costs
The best answer is a simple one: do what restaurants have always done and pass the costs onto customers with strategically targeted price increases. This can be the least disruptive to your business and the perception of customers. Some restaurants have tried to cope by tacking a COVID-19 surcharge to every bill. The problem with a blanket surcharge is that it can feel like a punishment, especially to customers who may be out of a job or suffering other financial hardship. Restaurants who went this route have faced large amounts of backlash, both online and in-store, from costumers surprised and irritated by the extra charge.
Raise the Price Where You are Feeling It
Increase the prices on food that costs you more. This is a straightforward approach and easy to explain to customers. If the costs of avocados or coconuts are up 50%, then you can say you have no choice but to raise prices on dishes with avocados and coconuts. If you have to increase an item's price to an unreasonable degree in order to make the margins work, consider cutting that item from your menu until supplier costs level out.
Raise Prices on High Volume Items
This is the best strategy for keeping the visibility of price increases to a minimum. If you raise the price of something by only $.50, who is going to complain? And you will make up a lot of revenue by selling thousands of those items. Instead of printing all new menus or packaging, you can simply slap a food label with the new the price onto the item.
Raise Prices on Bargain Items
This is another easy-to-justify strategy. Prices were too low to begin with! Most customers know when they're buying an item below market value or at a bargain discount, and will understand if you need to raise those prices to more competitive rates during COVID.
Make the COVID Charge Optional
Rather than force your customers to pay a surcharge, which could alienate the unable or unwilling, give your customers the option to pay an extra charge and help support your business through these tough times. Think of it like a checkout prompt at the grocery store to round your bill up and donate the extra change. Adding a line to your menu or receipt like
Do you want to give us $1 to help cover the costs of COVID? can infuse some much-needed cash into your business, as well as strengthen the ties between your restaurant and your customers.
Add Takeout Surcharges
Marking up your to-go orders helps cover the extra packaging and logistical costs associated with takeout, as well as make up for lost revenue from dine-in only products like alcohol. It can also help replace the tips your waitstaff misses out on when takeout's the only option.
Ask for Tips on Takeout
Traditionally, customers are only expected to tip the person actually delivering the food. Since so many restaurants outsource that job to services like UberEats and Grubhub, that extra revenue never gets passed back to the people making the food. If you handle your own takeout orders, consider adding an option for customers to show their appreciation with an extra tip for you and your staff.
Nobody knows how long the pandemic will continue to impact our everyday lives. However, nobody expects it to go away soon, and meanwhile, people want to go on living and enjoying their favorite restaurants and social hubs. Restaurants will continue to adopt best practices to provide diners with a safe environment as well as delicious food. It's just going to cost a little bit more here and there. As long as there's choice, nobody's going to mind.