Chain restaurants, a significant component of the American dining landscape, employ specific strategies to manage operational costs, particularly in response to tariffs and inflation.
Operational Efficiency and Standardization
Restaurant industry experts, such as Stephen Zagor, an adjunct professor at Columbia Business School, characterize food businesses as manufacturing operations. Success in this model relies on repetition, standardization, and waste reduction. This approach enables chain restaurants to maintain product consistency and manage costs across multiple locations, ensuring, for example, that a menu item like crispy chicken tenders and fries is consistent in quality and cost whether served in Topeka, Kansas, or Honolulu, Hawaii.
Cost control also involves meticulous inventory management, understanding product specifications, and making purchasing decisions. This includes evaluating whether to buy pre-made ingredients versus raw materials, or adjusting ingredient types, such as switching from large tomatoes to Roma tomatoes, to optimize expenditure.
Economic Pressures and Price Adjustments
The food sector has experienced rising costs due to supply chain disruptions, environmental factors, and tariffs imposed by previous administrations. Data from the Bureau of Labor Statistics indicates that grocery prices 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 saw double-digit price rises in 2022.
Chain restaurants have responded to these pressures by adjusting menu prices. Texas Roadhouse, for instance, increased its menu prices by approximately 1.7% at the beginning of the fourth quarter of this year, according to CEO Jerry Morgan. Applebee's offered its "All You Can Eat" menu for $15.99 in 2023, an increase from $12.99 in 2022. However, companies like Texas Roadhouse aim to minimize the cost burden on consumers.
Another strategy involves optimizing menu offerings. John Peyton, CEO of Applebee's parent company Dine Brands, stated that the restaurant reduced its menu from 135-140 items to 105 following the COVID-19 pandemic. This reduction focuses on best-selling and highest-yielding items, enhancing 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 helping restaurants manage costs. Companies like Sysco assist clients in identifying cost-effective menu options, such as substituting ingredients (e.g., different types of lettuce) or changing protein sources (e.g., chicken instead of beef) in response to market price fluctuations. Ryan Forth, president of Sysco's South Texas region, describes this as a process of "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 a key method for maintaining competitive prices. However, this tactic has drawn criticism. The Outlaw Ocean Project reported allegations of Sysco's Chinese seafood suppliers using North Korean forced labor; Sysco stated it ceased working with those suppliers upon learning of the allegations and maintains human and labor rights rules for its suppliers.
Additionally, the consolidation within the food distribution industry, where Sysco has acquired numerous food service and equipment providers since 2017, has led to concerns regarding menu uniformity. Journalist Adam Chandler notes that many restaurants utilize the same food providers, resulting in similar menu items that are often pre-cooked or pre-prepared to cut costs and ensure quick service. 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.