Chain restaurants in the United States are employing operational strategies such as cost management, standardization, and menu optimization to address rising expenses caused by inflation, supply chain disruptions, and tariffs. These measures aim to maintain product consistency and manage costs across multiple locations while responding to increasing input prices and market dynamics.
Operational Efficiency and Standardization
Restaurant industry experts, including Stephen Zagor, an adjunct professor at Columbia Business School, characterize food businesses as manufacturing operations. Success in this model is attributed to repetition, standardization, and waste reduction. This approach allows chain restaurants to ensure product consistency and manage costs across various locations, applying to menu items such as crispy chicken tenders and fries, whether served in Topeka, Kansas, or Honolulu, Hawaii.
Cost control methods also involve detailed inventory management, understanding product specifications, and strategic purchasing decisions. This includes evaluating whether to acquire pre-made ingredients or raw materials, and adjusting ingredient types—such as switching from large tomatoes to Roma tomatoes—to optimize expenditure. Procurement choices may also include specifying purchases like ground beef versus pre-made patties.
Economic Pressures on the Food Sector
The food sector has experienced increasing operational costs due to supply chain disruptions, environmental factors, and tariffs. Casual dining establishments, which position themselves between fast food and fine dining in terms of price and service, have also been affected. Data from the Bureau of Labor Statistics indicates that grocery prices have increased by 29% and dining out costs by 33% since 2020. David Ortega, a professor of food economics and policy at Michigan State University, notes that while moderate price increases are typical in a healthy economy, the sector observed double-digit price rises in 2022.
Restaurant Responses to Rising Costs
To manage these increased expenses, restaurants have implemented strategies such as adjusting menu pricing and optimizing menu offerings.
- Price Adjustments: Texas Roadhouse, for example, increased its menu prices by approximately 1.7% at the beginning of the fourth quarter of this year, citing rising wage and utility costs. Applebee's adjusted the price of its "All You Can Eat" menu from $12.99 in 2022 to $15.99 in 2023. Executives, including Jerry Morgan of Texas Roadhouse and John Peyton of Dine Brands (Applebee's parent company), have stated an objective to limit the extent of cost transfer to consumers.
- Menu Optimization: Applebee's reduced its menu from an initial 135-140 items to 105 following the COVID-19 pandemic. This reduction focuses on best-selling and highest-yielding items to enhance operational simplicity in kitchens.
Role of Food Distributors
Major food distributors, including Sysco Corporation, US Foods, and Performance Food Group, play a central role in assisting restaurants with cost management. Companies like Sysco operate large-scale facilities for processing and distributing food products and help clients identify cost-effective menu options. This can involve recommending ingredient substitutions, such as different types of lettuce or changing protein sources from beef to chicken in response to market price fluctuations. Ryan Forth, president of Sysco's South Texas region, describes this as a process involving "menu creation, analysis of the menu, what's most profitable for them, what's going to drive more foot traffic into their restaurants." Outsourcing food procurement and preparation to large distributors is identified as a key method for maintaining competitive prices.
Industry Dynamics and Criticisms
The reliance on large food distributors for cost management has received scrutiny. The Outlaw Ocean Project reported allegations that some of Sysco's Chinese seafood suppliers utilized North Korean forced labor. Sysco stated that it ceased working with those suppliers upon becoming aware of the allegations and maintains human and labor rights rules for its supplier network.
The food distribution industry has also experienced consolidation. Sysco, for instance, has acquired at least eight food service, equipment, and food providers since 2017, and a 50% stake in two Latin American food service providers in 2020. Journalist Adam Chandler has commented that this consolidation can lead to a homogenization of food offerings and an increased use of pre-prepared ingredients, which he attributes to methods for cost reduction, consistency, and service speed. Greg Keller, executive vice president of national sales & specialty businesses for Sysco, asserts that the company aims to offer a variety of products and prices to meet diverse customer preferences, noting the availability of regional distributors as alternatives for restaurant owners.