QSR April 2023

INFLATION

the period ended August 2022, the largest over-the-year percent age increase since an 8.4-percent jump in October 1981. And with a looming economic downturn, consumers began cutting back on restaurant spending, all while res taurants continued dealing with headwinds coming from all direc tions. For example, restaurants expe rienced supply chain shortages in core items such as eggs and poul try in 2022, but niche items were also disrupted, leaving restaurants scrambling to find cost-effective menu item replacements, says Zach Goldstein, CEO of restau rant loyalty platform Thanx. “The restaurant industry sup ply chain faced critical disruptions which resulted in huge COGS [cost of goods sold] increases, requiring upheavals in operations including changes in suppliers and price increases at the customer level,” he adds. Yet, passing those costs along to customers by increasing menu prices should be a restaurant’s last resort, says Paul Reynish, CEO of Gong cha. The bubble tea brand managed to keep prices stable in 2022 by leveraging volume growth to negotiate lower costs with suppli ers. Gong cha grew its store count by 17 percent yearly since 2020, adding nearly 750 stores globally, and increased its revenue by 20 percent last year alone, selling 108 million bubble teas.

tain high quality, but use one less ingredient and have the same fla vor impact? “Menu innovation has been huge for us. We make sure we have a menu that is balanced to maintain profitability, and there fore not put prices up,” Reynish says. For example, the brand’s new peach-based tea can be served in various formats: A regular tea, a frozen beverage, and a smoothie. Using one flavor profile in three different ways spreads out the daypart impact, he notes. “Peach is not really well known or a high-index flavor, but we managed to work with suppli ers and get real fruit by going to them, and we said, ‘How do we invent something we haven’t been doing before using peach as our core flavor?’” says Reynish, plus it’s a good way to increase volume while exciting customers with new products. At the same time, promoting value beverages within stores and in the media—such as ice-based drinks—also helps maintain lower prices, he adds. Maximizing every dollar spent on food costs has become more important than ever, and restaurants should keep an eye on food waste and cross-utilize products whenever possible, adds Yury Krasilosky, executive chef of Barilla America’s Foodservice R&D. “These days, operators have

GONG CHA MANAGED TO KEEP PRICES STABLE BY LEVERAGING VOLUME GROWTH TO NEGOTIATE LOWER COSTS WITH SUPPLIERS.

to make every ounce of protein and produce count [by] using what’s in season in the produce category and other items across the menu.” For example, adding steak cuts and chops on winter menus and braising cuts in the summer can reduce costs and decrease the likelihood of product delays or shortages, notes Doug McNicholl, North America regional manager for Australian Beef & Lamb. “Consider cuts ‘outside the middle’ for both lamb and beef, where supplies are more available and operators can find value,” he says. A word of caution: Beef supply from the U.S. will likely be constrained in 2023 and 2024, a leftover impact from droughts across the middle and midwestern parts of the U.S., which caused ranchers to offload cattle due to lack of grass, McNich oll says. Wise operators will keep alternatives in mind.

LEVERAGING SUPPLIERS AND VALUE ENGINEERING MENUS For Reynish, it boils down to the brand’s long-term relation ships with suppliers, many of which have partnered with the brand since it had 50 stores. “Now we have 2,000 [stores], and they’ve grown their factories, lines, and teams, and we’ve seen that loyalty over time as they’ve helped us keep our wholesale prices low, for the most part,” Reynish says. While fuel, transportation, and labor costs have inevitably trended higher during the last couple years, the value discounts Gong cha has received allowed the brand to offer consistent wholesale prices to franchisees. Another key to Gong cha’s success is value engineering new products at strategic price points. Can a new menu item main

GONG CHA MILK FOAM TEA: ANGELA ROWLINGS, PEACHS: ADOBE STOCK / 5SECOND

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APRIL 2023 | QSR | www.qsrmagazine.com