Payments Tech Gets Fresh Look as Restaurants Reckon With Inflation and Margin Stress

2022 dawned with such promise for restaurants.

The pandemic was ebbing from a horrific surge that marked December into January. Economies reopened fully, and consumers were ready to dine in again.

For the eateries that had weathered the storm, there were fewer competitors on the scene with which to joust for customers’ dollars — and then inflation roared, reared its head and crushed margins.

Priority Technology Holdings CEO Tom Priore and Z’Tejas Southwestern Grill’s Director of IT Andrew Ritter told PYMNTS’ Karen Webster that, in Ritter’s telling, one word sums up the operating environment right now: “Tumultuous.”

Inflation and Supply Chain Issues 

Now, it needs to be pointed out that inflation is the biggest concern among small businesses as surveyed by PYMNTS — including restaurants. Regardless of vertical, one way to combat inflation has been to raise prices.

As PYMNTS has found, 22% of Main Street businesses have raised prices on their goods and services. Thus far, the move has helped restaurants gain ground lost in the pandemic, as PYMNTS estimates that the group is only 1.3% below pre-pandemic levels.

But the macro headwinds are taking a toll, pinching firms’ coffers. Priore noted that discretionary spending overall is in a precarious state, because when gas and groceries cost so much, there’s not much room to dig in and find the cash necessary to splurge on other things.

Among the challenges that are specific to restaurants, per Ritter, is being able to get new employees on board, as well as retaining the workers on hand.

The supply issues extend beyond price, because getting enough produce, meat and all manner of items consistently is no sure bet, especially if restaurants are operating in multiple markets. Southwestern Grill, by way of example, operates in Texas and Arizona, and also has a ghost kitchen concept on hand.

“We basically have two supply chains running through every one of our units,” Ritter said.

Ritter added that in the bid to keep things streamlined, technology is critical. He noted that one ambition is to streamline workflows for employees.

That can be done with flexible point of sale systems (through Toast and Union) that let guests order at the table, manage their orders and pay at the table in a model that is almost akin to self-service.

“They can have as much or as limited interaction with our staff as they would like,” Ritter said.

But behind the scenes, behind the consumer facing interactions, the pain points are stubborn and widespread.

Ritter said pricing increases must be done judiciously when being passed along to the consumer, and they are most visible with proteins, such as chicken and beef, that are expensive to procure and especially expensive to import. Avocados, asparagus and specialty offerings from Mexico are also proving harder to come by — and harder to pay for.

“We’ll spread those price increases to items where we didn’t really see an increase on our side [of the transaction], such as milk and eggs — while we’ll take a loss elsewhere to balance things out,” said Ritter.

That approach has helped Southwestern avoid levying surcharges. The company has, however, been tacking on additional costs for delivery (including through the aggregators).

The urgency of navigating uncertain supply chains means that restaurants’ integration of backend and enterprise resource planning (ERP) systems have to offer up near real-time visibility into food suppliers, inventory availability and order management.

As Priore remarked, restaurants that have supply chains that stretch across borders need to be nimble enough to react to changes that occur, literally, overnight. A truck that is, hypothetically, stopped at the border can lead to ingredient shortages.

“It’s an art and a science as to how you ‘shade’ all of this into your business so that you remain competitive but also profitable,” Priore said.

The efficiencies add up, Priore added. For instance, a company that is able to leverage a 1% margin improvement on better inventory management can see significant cash flow improvement — which is doubled if and when the consumer experience is made all the more enjoyable so that the customer is willing to accept a 1% surcharge.

At the center of it all, Priore continued, lies banking and payment tools that ensure that restaurants get their money faster, with high visibility.

Automated payables solutions can help pay vendors early for a discount, which in turn boosts margins, he said. Payments can be wielded as a strategic tool to squeeze even more margin out of the business, especially when transactions settle instantly. Faster payments, especially to the restaurant’s employees, can cement loyalty.

As Priore told Webster, “Payments are not about just accepting credit cards these days. They’re about money in and money out and how money gets stored and re-directed.”

That improved visibility will be critical for small- to medium-sized businesses (SMBs) during the next downturn, Ritter noted, especially as PYMNTS found that roughly 46% of restaurants have less than a month’s worth of cash on hand. Accelerating access to cash is no longer a nice to have — it’s a must have.

To get a sense of how fraught things were as the pandemic slammed the U.S. in the spring of 2020, he noted that one morning, the company — which came out of bankruptcy in 2019 — had $2,000 in cash on hand (management stepped up to give the firm an emergency cash infusion).

With advanced technologies on hand, Ritter said, that cash picture has obviously improved, dramatically so. Gone are the days when cash was done by armored cars ferrying dollars and coins to the bank.

“Every dollar you can bring in as quickly as you can bring it in — well, that makes all the difference in how you can be able to just stay afloat,” Ritter said.

Looking ahead, as businesses realize the benefits of cash acceleration, providers (Priority among them) will find value in open architecture, fostering connectivity across supply chains and financial services.

Reflecting on the challenges at hand, Ritter said, “I’m forever an optimist. When I think of the future, I know it won’t be this way forever — and an investment in technology today will provide margin relief in the future.”

This post often contains affiliate links. All products are ones I use. If you choose to buy one of these items through the URL , I will receive a small commission at no extra cost to you.

Leave a comment

Please note, comments must be approved before they are published