Why Restaurants Keep Increasing their Prices, While Shrinking Portion Size

Do you remember those $1 value menus? Or how about the days when 2 people could eat in a sit down joint for under $30? Those days are over, unfortunately, but I assure you these moves are not about profit.

As inflation grips our economy, it is easy to blame companies for inflating prices for the consumer. It is easy to look at the menu, see the prices, and complain to your server or counter server. I assure you, these individuals would prefer lower prices and more guests – but this can not be so. Inflation increases prices for the consumer because prices for everything else has already increased. You can see it in the grocery store – how once you could fit $200 in groceries in your trunk, whereas nowadays that expenditure will fill your passenger seat only. These are not the only prices that increased.

The employees in these establishments are also more expensive. Labor and Food cost are the two most expensive line items on a restaurants financials, and they are definitely not cheap. As prices increase all around, these employees require more per hour to live, and that cost hits the consumer.

Restaurant profit margins are minimal compared to other industries. There is a profit for most, absolutely, but some chains actually have stores that remain open even though they are losing money. This occurs when new locations open, rent increases, or other scenarios. Most restaurants will increase the price for the consumer if they notice that the trend of increasing prices for goods not halting, or becoming flat. These prices will vary up and down typically, but with inflation comes with no reductions, only increases.

Inflation destroys family owned restaurants that cannot compete with the chains that can slow openings or run with less team members. Understanding this, it is much easier to see why those prices go up. However, in some situations, taking price is not the answer. If price increases too much, they will lose their customer base. The other option is to reduce portion size. This is much less controversial to do, and most people will not notice immediately.

This usually begins with an ounce of product here, and an ounce of product there, while keeping the price the same. If the portions were larger to begin with, this will not affect the value proposition and therefore will help with those extra costs. For example, a Tex-Mex joint might adjust the dinner portion of fajitas from 8 ounces of protein down to 6, as well as adding 1 extra ounce of onions and peppers under the meat. The guest would not necessarily notice the difference in protein weight, because the extra onions would raise them up – and the guest is still making the same amount of tacos. The restaurant benefits since produce is less expensive than meat.

No business wants to increase prices and alienate customers because of cost. They would much rather have more guests, and remain busy with a lower margin. Ultimately, inflation hurts everyone, from the business owner to the consumer. No one is safe, and although we may believe that raise was substantial, but in fact inflation can make that raise simply a way to get you back to making the same amount you were making before the inflation began – a tragic scenario not spoken of enough.