As external inflationary pressures continue to affect the restaurant business, operators need to be creative to balance customer needs with cost containment. Dallas-based Korean fried chicken restaurant Bonchon faces the added challenge of sourcing many of its ingredients from overseas markets, which caused the chain’s raw material costs to rise during the pandemic. But like so many restaurants, Bonchon had to be creative to address these external macroeconomic factors.
“We went from paying around $ 120 in 2020 for a pallet of our sauce that we ship from South Korea, to over $ 1,700 for the same pallet in 2022,” said Flynn Dekker, CEO of Bonchon. “We had to figure out how to weather that storm and not pass on all that cost increase to our franchise partners. We had to be creative in finding substitutes for some products to eliminate international shipping as much as possible. “
Bonchon ended up moving the production of ingredients like the chain’s signature sauce to the United States to cut costs. Not only did the chain have to contend with the astronomical costs of shipping products from abroad, but Bonchon’s signature dish chicken wings was one of the worst inflationary losses last year. As a result, the Korean chicken chain has had to become innovative in the way they promote menu items and add new dishes.
“While chicken is at the heart of our menu and, of course, chicken prices have hit record highs over the past year, we have the option to focus on other items like noodles or rice dishes that cost less,” said Dekker. “We are currently promoting an item called Crunchy Chicken Bowl, which has a good entry cost for price-conscious customers and allows us to cross-use existing ingredients.”
It might come as no surprise that Bonchon has had to accept two price increases of 3-3.5% each in the past year for a total of 7% menu price increases. Dekker said that raising menu prices is both a science and an art, because you want to be able to offset the costs of raw materials but not turn off customers, who are looking for a quality casual dining experience that doesn’t break the bank.
“We really look at a broad subsection of the market and ask ourselves, ‘What are consumers out there willing to pay?'” Said Dekker. “We look at what other big brands are doing in terms of price hikes and we want to keep somewhere in between. We cannot go too low because the costs of raw materials are high, but we don’t want to go too high because we want to provide the best quality product at an affordable price ”.
Despite the changes Bonchon made to reduce costs and focus on customer needs, Dekker said they are still seeing a slowdown in consumer spending, just like the entire retail industry. Despite this softening in customer spending, Bonchon’s sales are down about 9% year-over-year. Even with a possible recession on the horizon, the one thing you won’t see Bonchon doing? Coupons or sales. Instead, the company hopes to always promote fair prices.
“I deal with value, not discount,” Dekker said.
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