As inflation skyrockets to a near 40-year high, businesses of all types are upping their prices to offset rising staffing, supply and other costs.
Not Lake Forest-based Del Taco.
The Mexican fast-casual restaurant chain, the sixth-largest chain based in Orange County, last month added a trio of items to its “20 Under $2 Menu,” a new variety menu that was launched at the start of the year.
For less than an eight-piece box of Chick-fil-A chicken nuggets, customers can walk out of a Del Taco with a pair of tacos or burritos as a main course, nachos or a quesadilla as a snack, and a beverage.
“We want to continue to be first in [consumers’] minds as the go-to solution when inflation continues to shrink their wallet,” Chief Marketing Officer Tim Hackbardt, who returned to the company in 2020 after a career counting stops at several other OC restaurant chains, said in a statement.
The budget-friendly menu stands out in an industry struggling to keep a lid on prices.
According to the Bureau of Labor Statistics, the price of quick-service products grew 7% in April while full-service meals jumped 8.7% year-over-year.
“Restaurants are all going to take a beating this year, because I don’t think any of us can price our way up to cover cost inflation,” California Pizza Kitchen Chief Executive Jim Hyatt told the Business Journal last week.
“The consumer has to react, and we’re waiting on that.”
Del Taco isn’t the only local food company bucking national trends by holding the line on pricing.
The following are a collection of OC restaurants taking measures to address rising costs without putting all the burden on the consumer.
Wienerschnitzel: Old Traditions Remain
Irvine-based Wienerschnitzel entered a new era of leadership with J.R. Galardi taking the helm at the 61-year-old family-owned company in February.
Value remains front and center for the company, which posted solid gains during the pandemic.
Reporting U.S. sales of $360 million for 2021, the Wienerschnitzel chief executive takes pride in keeping up with consumer demand with its longstanding drive-thru model and value prices.
“The drive-thru really succeeded, and we have incredibly low food cost for the industry. There are no competitors,” Galardi told the Business Journal shortly after taking over the top spot.
With goals of going international, the hot dog chain currently counts nearly 320 locations across North America.
Chipotle: Pricing Power
While addressing the “pricing lever” when it comes to keeping competitive wages, Chipotle Mexican Grill Inc. (NYSE: CMG) said it benefits from high customer appreciation for its products.
“The chicken burrito for most parts of the country is still less than $8. The chicken bowl is still less than $8, and that’s phenomenal value,” Chief Executive Brian Niccol said.
The quick-service Mexican food chain—No. 2 among OC restaurant chains with $7.5 billion in systemwide sales last year—raised menu prices about 4% last December to offset incoming labor costs. After a higher level of commodity inflation than expected in the first quarter, Chipotle increased prices another 4%.
Chief Financial Officer Jack Hartung anticipates another step up in the second quarter but expects relief at the end of the year.
Also strengthening its workforce through labor innovation, Chipotle has introduced new artificial intelligence options from its robot chipmaker for help in the kitchen to a new learning management system for training.
Taco Bell: Fan Favorites Return
Operating under Yum Brands Inc. (NYSE: YUM) umbrella, Irvine’s Taco Bell is a brand known for menu innovation and modern strategies to stay relevant within its consumer base.
Like Del Taco, Taco Bell—OC’s largest restaurant chain by sales, with $13.3 billion reported for 2021 sales— has used its menu to offer competitively-priced deals, such as $2 burritos and the fan-favorite nacho fries, which run about $1.50.
The Cravings Value Menu features $1 and $2 price points, and represents 70% of Taco Bell’s U.S. profit, according to Yum Brands Chief Executive David Gibbs.
Building on the brand’s relevance, the recent return of the Mexican pizza to Taco Bell’s menu has the company capitalizing on the long-awaited homecoming by creating pop culture moments for consumers to enjoy.
The company said “the Taco Bell test kitchen worked to streamline operations and ingredient sourcing” alongside customer requests to bring the fan favorite back this month amid industry shortages.
“Convenience and value win in any environment, particularly when you couple it with our great brands and innovative products that we’re constantly introducing,” Gibbs said.
Kura Sushi: Robot Replacements
Irvine-based Kura Sushi USA Inc. (Nasdaq: KRUS) reported 2021 revenue of $33 million and has sights on annual revenue of $33.4 million for 2022.
The revolving sushi bar—not among the top 28 OC-based restaurant chains by sales, but No. 4 among OC-based publicly traded restaurant companies with a $315 million valuation as of last week—has been ushering in a new kind of in-store staff to help with staffing shortages—robot servers.
These “Kurabots” are a part of the restaurant’s workload initiatives, say officials for the company, which was long used automation as part of its branding.
As of April, Kura Sushi has added robots to 20 of its restaurants and expects full systemwide rollout by the end of the 2022 fiscal year.
“This response has been overwhelmingly positive, both in terms of the ability and fun that robot servers provide and the improvements to customer service resulting from the reduction of non-hospitality focused responsibilities for our front of house employees,” Chief Executive Hajime “Jimmy” Uba told analysts this month.
In its most recent earnings call, Uba addressed recent commodity inflation pointing out the chain’s ability to keep cost of goods flat due to a low amount of goods to purchase. With over 100 items necessary for its menu offerings, Kura Sushi’s top five purchases make up about 25% of the overall purchase, which keeps cost spikes less effective, according to Uba.
With guests self-managing their own small plates and orders at Kura Sushi locations, rates of consumer plate consumption are higher than three years ago despite pricing, Uba said.
BJ’s Restaurants: Eyes Sit-In Crowds
In the face of staffing and supply shortages, BJ’s Restaurants Inc. (Nasdaq: BJRI) plans to mitigate costs across its organization while keeping the appearance of BJ’s restaurants attractive to consumers.
Despite Chief Executive Greg Levin’s desire to provide affordability, the company made a 1.8% menu price increase in February and another 1.4% boost is coming in June.
“This amount of pricing is still behind current inflationary trends,” Levin told analysts.
After citing aftereffects from January’s COVID-19 variant for low in-restaurant dining numbers, the restaurant operator has tried a few strategies to maintain customer loyalty.
BJ’s introduced a California Beer Club subscription service in 2021 to drive more in-store traffic and spending, and the company reported high customer engagement during the first quarter of 2022.
The restaurant chain also saw gains this past quarter from a remodel initiative featuring room capacity expansions, new design elements, and revitalizing hospitality practices to boost dine-in services as BJ’s sit-in restaurant crowds return.
BJ’s priority for surviving the inflation era will be capitalizing on driving traffic back into its restaurants.
“Sales are improving with guest demand, [and] we can drive guests into our restaurants to leverage the fixed costs in our business to improve margins,” Levin said.
Del Taco: Valuing Values
Del Taco Restaurants Inc. claims to offer the widest variety of food and drinks under $2 among its competitors.
“In the quick-service category, we are continuing to see value menus disappear at a time when guests need affordable, flavorful and fresh-made food more than ever,” Chief Marketing Officer Tim Hackbardt said last month, upon introduction of the new $2 and less items to its value menu.
San Diego’s Jack in the Box Inc. (Nasdaq: JACK) completed its $575 million acquisition of Del Taco on March 8. The company’s Lake Forest base of operations has remained post-sale, though other efficiencies gained from the merger could help offset costs, officials believe.
“Together, Jack in the Box and Del Taco will benefit from a stronger financial model, gaining greater scale to invest in digital and technology capabilities, and unit growth for both brands,” Jack in the Box CEO Darin Harris said in a statement.
Jack in the Box, valued around $1.6 billion as of last week, was among the first quick-service restaurants to introduce robots for some cooking duties, like flipping hamburgers.