June 29, 2022 | Franchises
What Franchisees Should Know About Pricing and Inflation
For restaurants in Ontario, the past few years have been challenging to say the least. From lockdowns to supply shortages and constantly shifting regulations, businesses have had to adapt their approach to operations in order to be successful. As Ontario enters a post-pandemic business landscape in 2022, new challenges are emerging – impacting both restaurants and customers alike.
Today, one of the most prominent obstacles facing restauranteurs is rising operational and supply costs. While inflation has been the primary scapegoat for consumer sticker shock in recent months, other factors such as labour shortages and supply chain issues are also contributing to rising costs for businesses.
As a franchisee, you operate your business within a distinct framework. Therefore, these changes may impact you differently than an independent restaurant owner. That being said, it’s important to understand how these trends and challenges are impacting the industry as a whole.
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Industry Impact
First and foremost, franchisees should know that these challenges are not unique to just a handful of restaurants or companies. From dominant multi-national chains to independent coffee shops, operators and owners alike are feeling the pressure of rising prices.
Where restaurants differ is in how their growing costs are being passed on to customers. Earlier this year, Restaurant Brands International (RBI) the parent company behind Tim Hortons, announced their popular coffee chain would be increasing prices to account for both inflation and staffing shortages.
Inflation
While other factors do play a role, the primary element of rising supply costs for restaurants is ultimately inflation. Inflation rates in Canada have been steadily climbing since late 2020, before reaching a record high of 7.7% in June 2022.
Rising inflation has impacted virtually every industry in Canada. So while some restaurants may feel anxious about adjusting prices to account for higher costs, It’s worth noting that customers are already becoming accustomed to paying more for everyday things.
As businesses and consumers adapt to rising costs, both federal and provincial governments have announced initiatives to get inflation under control. These include various small-business support programs and an increase in target interest rates.
Labour Shortages
During the COVID-19 pandemic, many Canadians who worked in the service industry were sadly laid off. Now, as the country transitions back to normality, many restaurants are having a hard time filling vacancies.
While there are several contributing factors, many labour-related challenges can also be connected to rising inflation. As the cost of living continues to climb, many people who are looking for work are simply unable to accept a job that won’t allow them to make ends meet.
As a result of these challenges, many franchisors and restaurants are looking toward labour-saving technology as a solution. For instance, self-ordering kiosks have already become a staple feature in many QSR franchises. While recently-announced federal initiatives will hopefully boost the long-term labour supply in Canada, technology-based solutions are gaining steam as a short-term solution.
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Supply Chain Challenges
As a result of both inflation and labour shortages, many of the critical supply chains that restaurants rely on have been negatively impacted. Less available labour at a farm or factory means less product is available for restaurants to serve their customers.
Although many franchisors have strong relationships or agreements in place that can give you a leg up over independent restaurants, how this impacts you will depend on your franchise model. While some franchisors allow franchisees to select which suppliers they work with, others aren’t so flexible.
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