The Effect of High Gas Prices on Restaurants

Aug 18, 2022

Thanks to inflation and high gas prices, the nation’s economic recovery from the COVID-19 pandemic has hit a snag in recent months. Research shows that approximately 68% of small and medium-sized businesses have struggled to bounce back due to current gas prices — including many restaurants across the country.

To What do we Credit the Surging Price of Oil and Gas?

First, the good news: American gas price averages have fallen from their highest of $5 a gallon to $4.16 – according to the AAA gas prices report. Although the state gas price of California and Hawaii remains well north of $5 a gallon. While the dip in US national gasoline prices is welcome, the current price of gas is still very high relative to the price two years ago. So, to what or whom can we credit this high price of gas?

While some simply blame President Biden for the state of the economy (along with too high gas prices), a more nuanced and even view is demanded upon further analysis. The price of gasoline is a good indicator of the health of the crude oil and petroleum economy. One reason gas prices are so high is rising crude oil prices. The price of crude oil has been increasing since October 2021, up roughly $50 a barrel from one year ago. This has been exasperated by Russia’s war in Ukraine, which led to US and European sanctions. Part of these encompassed Russia’s crude oil, which comprised percent of the global oil market. At the same time, demand for oil has outpaced the production of oil as we have emerged from the pandemic. A major component of this is the growing costs of refining oil. The number of oil refineries that have closed down in the past few years has outpaced the construction of new oil refineries. Thus the two primary drivers of elevated prices of gasoline are the higher costs of oil and the refining of that oil.

How does what we pay at the pump for gasoline affect your restaurant’s bottom line? Let’s look at the link between gas prices and restaurants and what you can do to protect your business.

Higher Gas Prices = Fewer Diners

When gas prices go up, many households have less discretionary income. A study from AAA reports that rising gas prices force most Americans to change their driving habits — namely, that they limit the amount of unnecessary driving they do in order to limit gas consumption.

While driving to work, the grocery store, or visiting family and friends are usually considered essential, nights out at their favorite restaurants are not. This results in fewer patrons in your dining room and tighter margins each month.

Of course, it is important to note that the type of restaurant you operate will affect how hard hit you are by higher gas prices. Quick-service and fast-casual dining will likely see the most significant decrease in patronage due to increased gas prices, while fine dining restaurants are expected to be largely unaffected by gas prices.

Higher Price of Gas = Higher Cost of Business

As gas prices rise and the number of diners at your restaurant shrinks, you may face another challenge: higher food and delivery costs. Higher gas prices can result in higher wholesale costs for your ingredients due to the high prices of delivering them to your kitchen.

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Similarly, restaurants that offer delivery service may have to reimburse their drivers more due to the higher cost of fuel incurred. We already see this happening at delivery companies like Uber Eats and DoorDash, who are offering drivers up to 10% cash back on gas.

What You Can Do in Response to Rising Gas Prices

It can be challenging to offset the effects of rising gas prices on your restaurant. Gasoline and oil power the majority of our economy. You have a few options to offset the cost: you can raise menu prices, reduce portion sizes, or even reduce delivery costs by switching to local suppliers. You can even incorporate alternative fuel and energy sources into your restaurant: solar panels, ethanol fuel, or electric vehicles. Decreasing your demand for gas, oil, and petroleum and embracing alternative energy and fuel sources can set your restaurant up for future resilience and success.

However, the best way to prevent the price of gas and oil from affecting your restaurant is to invest in the customer experience. Well-trained staff and a positive dining experience will help you keep patrons visiting your business regularly – regardless of gas prices.

Synergy Restaurant Consultants has created an innovative restaurant training app that works seamlessly across multiple locations. Synergy U is an intuitive training application. It’s a powerful, flexible, and affordable digital training and operations platform for restaurants looking to upgrade performance. Reach out to us to learn more. Follow us on social media for the latest restaurant tips!