Innovation Against Inflation - How Gastronomy Can Prosper in Times of Rising Prices and Staff Shortages

Inflation and staff shortages are currently the biggest challenges for restaurants and hotels. What can gastronomers do about the negative consequences of rising prices and lack of labour? How to usher in a new era of gastronomy?

Inflation - The price is nice?

Inflation originally means to expand, to swell, to blow-up. And what is blown-up here is the price. Not the product. So you have to pay more for the same thing. Or to put it another way: the same money gets you less now.

From the guest's point of view: Fewer courses. Less wine, less good wine. Fewer restaurant visits. Fewer overnight stays - unless savings are made elsewhere or more is earned.

From the point of view of the restaurateurs and hoteliers: Less margin. Less service. Less comfort.  Fewer extras - if efficiency, occupancy or prices are not increased. 

Inflation is a vicious circle: If prices rise, wages follow, which in turn makes production more expensive and ultimately prices too.

This will only end when the money supply is reduced by the state banks. Or else through some lucky occurrences: Innovations, productivity advances, great harvests, resolution of conflicts, reduction of trade barriers and so on.

This leads to a much larger supply and thus - producers want to sell - to cheaper prices. Inflation goes down.

Inflation: What does this mean for the restaurant industry?

It's getting more expensive. But what exactly? Unfortunately, at the moment it's mainly the things that are central to the catering and hotel industry: food, maintenance, energy, staff. And to an extent that has not been thought possible for a long time.

Inflation: facts and reasons

Food

Restaurants and hotels cater for their guests, prepare them enjoyment. Food prices therefore have a considerable influence on the costs of running a business on the one hand, and on prices on the other, i.e. how much has to be demanded from the guest in order to run a profitable business. 

Very strong inflation can be observed in a number of foodstuffs. The prices of many products have risen by 80 per cent and more. For certain flours, sometimes by 300 per cent. And it's no different with wine. And not only in Burgundy. Prices are rising sharply in almost all wine regions. Inflation is often 20 per cent and more. This puts pressure on the margin, raises the prices on the menu, usually both. 

Maintenance

Whether it's a restaurant or a hotel: It has to look good. It has to work. It has to be clean: dripping taps, loose door handles, shabby carpets, glued-together remote controls, mouldy grout in the SPA, blind glasses, inconsistent cutlery? These are no-gos. An overnight stay costs. A dinner costs.  More than staying or eating at home. Something has to be offered. 

And not to forget. Others also sleep in these beds. Others also eat from these plates. So on the one hand, wear and tear is high, maintenance is often necessary. On the other hand, the guest should feel at home in a foreign country. So the signs of others are not in demand. 

Function, appearance and condition are therefore central to a guest's ability to truly enjoy, feel private and relax.

And even today we feel the dark, long shadow of the pandemic. Shortages of raw materials and supply bottlenecks not only make it difficult and a test of patience to get hold of substitute products and new ones, i.e. wine glasses. Inflation is also a problem. Costs have risen considerably. So maintenance has become much more expensive.

Energy

Arrival, delivery, pampering: With few exceptions, all of this is energy-intensive. The guest likes it warm? Turn up the heating. Fresh air? Open the window. Across the corridor at night? Lights on. And there's plenty of light outside, too.  It looks good at night. And comfort? Yes, of course. A lift? Two, three. And a swimming pool or whirlpool? That consumes so much energy that in Switzerland, if there were a shortage of electricity and energy, one of the first measures the federal government would have to take would be to stop operating pools. For hotels, however, the first consequence is that operation, with or without a swimming pool, will become noticeably more expensive. 

Gas, oil or electricity are strongly affected by inflation: Energy prices have risen rapidly with the war in Ukraine. And not only for hotels and restaurants, but also for guests. The regained freedom to travel and the end of the COVID measures still justify the increased optimism in the industry. But the lower purchasing power associated with inflation could still have a dampening effect on the demand for enjoyment in restaurants and relaxation in hotels.

Personnel costs

Purchasing power is only maintained if wages rise alongside prices. So if people earn more, the negative effect of inflation - people can afford less - can be cushioned or even eliminated. However, employees in the hotel and catering industry also have to earn more in order to be able to afford what they have so far.

The situation is aggravated by the fact that many employees have left the industry during the pandemic. Restaurants and hotels are desperately looking for staff, which once again has an impact on wages. Those who do not pay generously now have little chance of finding suitable and, above all, urgently needed staff. The consequence: higher costs here too and - the low margins in the industry are well known - an increase in prices for overnight stays, food and drink is almost inevitable.

Inflation: The consequences for the gastronomy

According to a survey by the German Hotel and Restaurant Association, inflation is one of the biggest concerns of hotel and restaurant managers. For 85 percent of the respondents, the rising prices for food and energy are a very big challenge. Higher staff costs are still a concern for 60 percent of the survey participants. 

This is also because only part of the higher costs are currently being passed on to the guest and a large proportion of businesses still have to cope with high sales losses compared to the time before the pandemic. For about 30 percent of the entrepreneurs in the German gastronomy sector, sales in Q1 2022 were only half of Q1 2019.

So higher costs with less turnover. And then there is also a lack of staff. So restaurateurs can often neither offer what they want nor at a price that is attractive to guests.

Inflation: How can restaurateurs react?

When costs rise, there are basically two options. On the one hand, prices can be increased, on the other hand, costs can be reduced. Relying only on increasing prices is unpopular and risky.

Even though wages are already rising, they are currently not keeping pace with price increases. So there is a risk that food, wine and accommodation will become too expensive for some. So they may forego a visit to the restaurant or hotel in part or in full. However, there should be understanding for moderate price increases at the moment, as prices generally or everywhere rise with inflation, according to DEHOGA General Manager Ingrid Hartges.

On the one hand, it is clear to everyone that with rising food and energy prices, eating out is also becoming more expensive.

Secondly, since COVID and the lockdown, the public is much better informed about the catering industry. The low margins, the high insolvency rate, the lack of staff and the extraordinary challenges since the pandemic are known to many.

Industry leaders such as Raphael Wyniger therefore urgently advise not to absorb the rising costs alone, but to pass on a significant part of the price increases to the guests. 

However, it will not work without reducing costs, as few can or want to pass on the full price increase of inflation (immediately).

Cost savings are especially attractive when they are not noticed by the guests. In other words: increased efficiency.

Energy-efficient equipment or low-maintenance facilities, avoiding food waste or no-shows, automating routine tasks. Often this is also in the interest of the guests. Who, in addition to less rising prices, also appreciate the sparing use of resources. 

Food

Food and beverage inflation is among the highest. But when it comes to food in particular, the increase in costs can be largely offset in most restaurants by avoiding food waste. This is because nearly half of the food in the restaurant industry goes to waste. 

Food waste: These are started or stained disposable packages for breakfast (but also for personal hygiene), which are often not only larger than necessary, but also produce a lot of waste. 

These are dishes that are ordered too much, side dishes such as bread that are served too extensively, but above all: these are a menu that is too extensive or too heterogeneous and a lack of knowledge about what is actually needed.

Reservation management with pre-pay and pre-order and measures against no-shows can help here.

Thanks to advance booking, the restaurateurs know in advance what will be on the plate. Thanks to advance payment, the guest really comes to the table and does not simply stay away unannounced. The purchase of ingredients can be planned according to demand, thus avoiding food waste. 

And this not only benefits the restaurateurs, who save on purchasing and avoid losses due to guests not showing up.

This also pleases the guests, who actually get what they hope for, and perfectly prepared. After all, the chefs know in advance what needs to be done and when. 

And anyone who communicates properly and informs guests about how consumption can be reduced and sustainability improved is likely to attract a lot of sympathy. The strategy of reducing consumption instead of relying on cheap and less sustainable alternatives is therefore contemporary and the first choice. 

Maintenance

Here, too, the rule is: less is more. Not less care, but reduced need for care or maintenance. In case of doubt, a lower supply is better than a lower level of maintenance. 

Because of the negativity bias - a well-documented social-psychological phenomenon - negative things are perceived more intensively and are remembered more strongly than positive or neutral impressions.

In other words, avoiding negative experiences or impressions is central to a good guest experience. Even a single flaw will tarnish an otherwise positive impression and leave a stale aftertaste. It's like Tinder. Good photos stand out, add a bad one and you're out. 

And then the old wisdom also applies: If you don't have money, don't buy cheap. Quality pays off and is perceived. Especially if the higher price is accompanied by lower maintenance costs or lower energy consumption. 

Energy

The more expensive energy is, the more worthwhile energy-saving measures become. Energy inflation should therefore favour innovation and the shift towards sustainability.

The potential for savings is there, but too much money cannot be saved - at least at present. At least not in restaurants where neither sauna nor swimming pool are on the menu. 

According to Gastrosuisse, energy costs amount to about 2 to 3 percent of total cost in the restaurant business. About 10-15 percent of the energy costs can be saved easily, e.g. through energy-saving equipment, optimized equipment settings and sensitized employees who focus on and avoid unnecessary consumption.

Staff

Staff are not only a cost factor - but also a cost factor. And staff also costs money if they are not there. On the one hand, if there are no staff, overtime and extra wages for the team's extra work can cost money. 

On the other hand, the so-called search costs can also be expensive. It can therefore be economically worthwhile to pay a little more than the basic wage and in particular to keep the good, efficient and high-turnover employees in the team. However, it must be said that this also entails inflation.

However, relying on much cheaper, unskilled labour can quickly backfire. Because a lack of service or long waiting times annoy the guests.

Digitalisation offers considerable potential for savings. Software and devices may seem expensive at first glance.

But the potential savings from automated processes far outweigh the costs for digital management tools. Automated confirmation emails, table assignment, no-show avoidance, payment solutions, coordination between F&B and Rooms in hotels such as via integration between the aleno reservation system and the protel, MEWS or Oracle property management systems save time and therefore money - without having to make any sacrifices in terms of personal service. 

Quite the opposite. Modern professional tools already allow the query of preferences, occasion of the visit or intolerances during the online reservation, so that service and cuisine can already prepare for this and offer a personal service, as well as up-selling and automated marketing also in the service of the guest. 

Conclusion: Innovation with inflation

In principle, therefore, the same applies to all areas: Inflation forces creative, innovative solutions in the direction of sustainability. The efficient use of resources, personnel and goods becomes even more important. And it becomes all the more important that the means and people used are of high quality.

Saving on quantity instead of cutting back on quality. What is now a crisis promotes innovation, so it also holds an opportunity. It opens the door to a new era of gastronomy in which digitalisation and sustainability go hand in hand and guests and restaurateurs contribute to a shared future - without compromising on enjoyment or profit.

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