Inflation and Its Ominous Shadow  

Inflation is simply demand outpacing supply causing prices to inflate while the value of the dollar subsequently decreases. 

Inflation happens as money supply grows and goods supply decreases.  The financial support as part of the pandemic and the pent-up savings from those who ceased many costly daily activities play both play a major role in the increase of money supplies.  The weakness of the supply chain, labor shortages and the resulting across-the-board labor increases have played a role in the lack of ability to get goods to consumers.  Add both facets together, and the definition of inflation becomes reality. 

Here is where we are:

*Figures based on Consumer Price Index as published by the US Bureau of Labor Statistics

The Good:

  • Inflation will go down when supply closes the gap on demand. 
    • Fuel will make the first move after production has been ramped up
    • Supply chain will continually work out kinks and improve
    • Fed will raise interest rates
    • Labor market shortages will be sorted

The Bad:

  • It will take a while
  • Not all prices will mirror deflation
  • COVID will continually cause “2 steps back”   

The Concern:

  • Rock and a hard place:
    • Restaurants are being hit with COGS increases as well as staff wage increases
  • What to do:
    • Buckle down on portioning, close on slower days, etc.
    • Analyze business activities to ensure value is driving customer experience; if not, put them on the shelf
    • Reduce the need for labor
    • Responsibly Increase prices

*Source:  US Bureau of Labor Statistics

  • What not to do:
    • Decrease the quality of your brand standard
      • Do not reduce portions on popular dishes without a facelift. 
      • Do not offer a full buffet of services knowing you cannot perform them as you have
      • It is better to reduce your offerings than to reduce the quality of your offerings
  • Shadow inflation is where a consumer pays the same amount for goods and services as they have in the past, but the quality has depreciated due to the business needing to cut costs

At all costs, try to avoid Shadow Inflation – your value will diminish, you customers will notice and your brand will depreciate.

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