Virtual X Kitchen CEO Tells Restaurants Not to Be Afraid of Raising Prices

The fear of alienating customers may be keeping independent restaurants from increasing prices.

As they struggle to balance the need to drive sales, to maintain a high quality of service and to mind their margins, price increases may be the only thing that gives them a fighting chance.

Nomie Hamid, founder and CEO of digital food hall company Virtual X Kitchen, noted in an interview with PYMNTS’ Karen Webster as part of our SMB TV series, which is available Thursday nights at 10 p.m. and is presented in partnership with PayPal, that many small restaurants are underestimating their ability to raise prices.

“I have been to numerous mom-and-pop restaurants, and I love going to them and supporting them, and when I look at their pricing, I am just amazed at how inexpensive it is,” Hamid said. “But then I see that they’re working on very extreme skeletal shifts, where they have only two or three people working … where they could use other bodies. But why aren’t the other bodies there?”

He added that the “fear factor” of losing customers is keeping them from implementing the price increases they need to give them room in the budget to keep the restaurant staffed. Hamid shared that, in his own business, it was his employees that recommended raising prices, and the benefits were significant.

Jordan Boesch, CEO of restaurant team management platform 7shifts, agreed in the same conversation that staffing needs to be the top priority, adding that soliciting regular feedback from employees is key to keeping everything on the right track.

“Focus on fixing your foundation, and then continue to build the next story on your house,” Boesch said.

Why It Matters

Independents may be worried about how raising prices would affect their customers’ relationships with the restaurant, but the impact of staffing issues on diner loyalty could take its own toll.

Research from the 2022 edition of PYMNTS’ Restaurant Readiness Index, which drew from a survey of more than 500 managers of quick-service restaurants (QSRs) and full-service restaurants (FSRs) across the country, found that about one in three restaurants reported that their level of service had decreased as a result of staffing issues. Additionally, 29% said that they had not been able to open as many tables as they could, which translated to missed sales opportunities.

Yet, despite these challenges, many restaurants have been absorbing much of the inflation with which they are faced. Data from the U.S. Bureau of Labor Statistics (BLS) Consumer Price Index for All Urban Consumers (CPI-U) found that, while food prices were up 11.2% year over year in September, restaurants’ menu prices only increased 8.5%.

What a Flex

One of the ways that restaurants can handle their labor challenges, in addition to raising menu prices, is by looking to alternative work models.

Boesch said one of workers’ top priorities right now is flexibility, opening up new possibilities for employment.

“We are seeing folks work multiple jobs in other industries and taking up gig work elsewhere as well, so it’s not just full-time and part-time work,” Boesch said. “There’s full-time, part-time and almost a third category, which is flex/gig work.”

He added that this latter category is “such an important aspect of the future,” noting that 7shifts’ network can help match qualified workers to restaurants for these kinds of shifts.

He explained that this kind of staffing is more complicated than, say, finding an available Uber driver, given that different restaurants require different training and skill sets, such that more factors go into which gig or flex worker is right for a given shift. Consequently, he said that “to be successful,” the restaurant industry needs to view this kind of labor model as “a matching opportunity.”

Keeping It in the Family

On the flip side, Hamid has seen value in just the opposite kind of work, investing in employees over a long period of time and building connections with them.

He noted that Virtual X Kitchen is next to the campus of The University of Maryland, College Park. As such, in addition to the full-time staff that has been working at the company “for a very long time,” Hamid becomes a mentor to the high school and college students who work part time.

In turn, these relationships yield long-term value for the company. Hamid stated that in busy periods, such as during the holiday season, former employees often step in to help.

“Anybody who has worked for us and [then moved onto] … other things and whatnot, has always said, ‘If you ever need help, call me,’” Hamid said. “So, I actually call them all the time.”

He explained that he’ll pay them extra, let them know the details of the shift, and if they are around, they will often come.

And the strongest incentive drawing them back?

“They’re happy to come,” he said. “They know they have carte blanche on food, and the biggest thing is food.”

For more from the PYMNTS x PayPal SMB TV series, join us each Thursday at 10 p.m. — you can register for free here.