The Impact Of Inflation On Food Franchises

Pre-COVID, food franchises looked like a very safe bet. After all, everyone needs to eat! Now, however, things are looking more challenging, but there are several ways food franchises can remain profitable.

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What is the issue?

The food industry in Canada is facing a challenging time right now, and there are a multitude of reasons for this:

• First, there was COVID, which caused lockdowns, temporary business closures, and a reduction of foot traffic.

• Droughts in prairie provinces have caused ranchers to disperse their herds.

• Floods elsewhere resulted in crop failures.

• The war in Ukraine is impacting the ability to obtain wheat, which not only impacts the baking industry but also means the cost of animal feed has rocketed to never-before-seen levels.

• It's a difficult time to recruit skilled people to the hospitality industry, and this means that many businesses are having to offer higher wages to attract and retain staff.

• Finally, inflation in Canada has risen to 6.8%, which is the highest it has been in 31 years.

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The cumulative effect is that food franchises will be facing the unavoidable need to implement price rises in order to remain profitable, and this brings with it a risk of a reduction in customers.

Consumers will not be surprised to see food franchises increasing their prices; grocery stores have already put in place many price increases on everyday essentials, as well as a 20 to 30% increase in the cost of beef. Unfortunately, even though they're expecting it, it doesn't mean they can afford it.

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What can food franchises do?

It is crucial, now more than ever, that franchises scrutinize their costs and make as many small changes as they possibly can to reduce their inputs. By reducing input costs, it may be possible to minimize the effect of price rises. This should always be the first way that businesses look to control costs.

This may mean sourcing different packaging. High oil prices are having a knock-on effect on the plastics industry, which means that not only will food ingredients be more expensive, but so will the plastic packaging that they are sold in, whether it's bottles, containers or lids. If possible, sourcing non-plastic products could be an ecologically and economically sound decision that will also appeal to consumers and perhaps help to maintain their loyalty in these challenging times.

It is worth trying to negotiate bulk discounts on non-perishable items to reduce unit costs. It is also important to understand your profit margin on each element of your business in order to identify areas to target for cost savings. Where cost savings are not viable, reasonable price adjustments should be implemented as required in order for the business to remain profitable and viable.