Hit with rising food costs, indie restaurant owners cope creatively

When Jeremy Ashby, executive chef of the restaurant Azur in Lexington, Ky., noticed food prices creeping up over the past year, he was initially stumped. He couldn’t save by buying in bulk, because his 3,500-square-foot business didn’t have enough storage space. He couldn’t cut down on staples like butter, the price of which soared at various points last year, because doing so would sacrifice taste. He eventually found the answer in his neighbors’ back yards.

“I found that turning to local sources really helped: We use local cheese makers, farmers and the aquaculture programs of local research universities,” he said. Ashby said he found that by going to local farmers, he could buy fresher foods in smaller quantities and promote the locally sourced flair in his dishes. “I pay a premium per pound, but to buy tomatoes from (distributor juggernaut) Sysco, I have to buy a case. From a local farmer, I can buy two pounds and only pay for what I need.”

Ashby’s solution isn’t typical (he’s partly helped by a Kentucky program that allows him to recoup up to 20 percent of the cost of locally grown products). However, his is a familiar story for independent restaurateurs across the country.

Squeezed by rising commodity costs, independent restaurant owners are trying to shave pennies off of their food bills any way they can, including by sourcing locally, haggling with their vendors, or serving smaller portions. In many cases, these efforts are an attempt to avoid passing the costs along in the form of menu price increases, which some owners fear will scare off customers in a still-fragile recovery for the dining industry.

In a survey of its members, the National Restaurant Association found that 20 percent said food costs were their “top challenge” in November 2011, while only 8 percent said so the year before.

“The independent restaurants really have to out-compete the chains,” said Howard Cannon of Restaurant Consultants of America. “It’s the great shaking-out. The ones that are strong financially will do even better, the ones that struggle will be dead.”

Wholesale food prices were up 7.8 percent in November from the same time in 2010, according to the Bureau of Labor Statistics. Pork, vegetables, flour and coffee experienced some of the steepest increases.

And while the U.S. Department of Agriculture says it expects there will be some abatement this year, the agency predicts food prices will increase 2.5 to 3.5 percent in 2012.

Independent restaurant owners are especially affected because they lack the economies of scale that chains have, so they can’t command the same low prices on basic goods.  That can put them at a disadvantage in a fiercely competitive industry with high failure rates and slim profit margins — two to four percent, in many cases.

“As if the business wasn’t bad enough, restaurants are being clobbered by food costs,” said Bob Goldin, executive vice president of the food industry consultancy Technomic. “But independent restaurants are really good at innovation, and they’re getting sharper.”

Azur’s move to local products is one way to manage food inflation, some of which is linked to fuel prices and transport costs. Sweetgreen, a D.C.-based restaurant company that serves organic salad and yogurt, has also become more deliberate about finding local sources for its produce.

“The past two years have been a challenge, but a lot of our produce comes from local farmers — they work with us, so our prices stay a little more stable,” said Sweetgreen co-founder Nicolas Jammet. “Getting organic kale locally in season is cheaper than flying it in from California.”

Some analysts, however, view “going local” as more of a marketing device than a cost-cutting one.

“Local sourcing connects with certain consumer groups, and chains can’t do it,” Goldin said. “For some consumers, it connotes quality, so it’s more for marketing and positioning.”

A more common option is to simply serve less of the most expensive items. Smaller portions are already among the top trends for 2012, according to a National Restaurant Association report.

Gregory Casten, who owns several seafood restaurants in the District as well as a seafood distribution company, said he’s “absolutely” seen smaller portion sizes at some restaurants.

“It drives me nuts, because I’m a big guy,” he added.

Sweetgreen officials said they haven’t reduced the amounts of various ingredients in their salads, but they have been monitoring their food supplies more religiously, ensuring that employees use an exact amount of the toppings for each order.

 

Changing up menus

One advantage independent restaurants have is their prerogative to change their menu offerings with relative ease and little push-back from customers.

Rick Camac, who owns five mostly Southeast Asian-themed restaurants in New York City and in the Virgin Islands, said he’s struggled with rising seafood and meat prices, particularly since “crab” is in the title of three of his restaurants. To cope, he’s tinkered with presentation — pairing pricey meat items with rice and vegetables so that he can inch up the price only slightly and preserve the impact of a full plate. (He finally had to make crab go for market price.)

He’s also tried changing his menu, adding noodle and vegetable dishes that go for a good mark-up and help offset the lower margins on meat. That’s one of the strategies Cannon foresees in 2012, when chicken and beef prices are again expected to rise.

For some, it even helps to re-engineer certain dishes in order to leave out more expensive products. Jeremy Merrin, who owns the New York City Cuban restaurant Havana Central, serves up gallons of sangria, but the type of fruit in it varies with the market prices of oranges.

“Instead of saying in your salad description that something has radicchio, for example, call it a lettuce mix — it gives you more freedom,” Merrin said.

Some restaurateurs are also swapping out cuts of meat and seafood, which typically make up about half their cost for each plate, for less expensive versions — which Goldin says is part of the reason for the big burger resurgence of 2011.

In fact, Casten said he’s surprised salmon hasn’t become a more popular menu item, since it has plummeted in price from last year.

“A savvy restaurateur is looking at these prices weekly and determining what items he can take advantage of,” he said. “When you’re an independent, each item is really important.”

Negotiating with vendors

For owners, haggling with distributors is nothing new, but some are making it an art form as they angle for every possible discount.

Merrin, like others, said his restaurant has been tougher with its food vendors and distributors, working out deals for months in advance or accepting fewer deliveries while buying more. Jammet said Sweetgreen also signs price contracts with farmers for their orders.

Marcus Giuliano, who owns the health-food restaurant Aroma Thyme Bistro in Ellenville, N.Y., said he wanted to upgrade to organic coconut milk from conventional, but coconut prices were skyrocketing. Rather than go to the wholesale company, he approached his broker and asked if there was anything they could do.

“She set up an ongoing discount with the wholesale vendor,” he said. “The brokers are the ones that sometimes have flexibility.”

Although it’s the most obvious solution, independent restaurateurs tend to be cautious about raising menu prices, said the National Restaurant Association’s vice president for research, Hudson Riehle.

“Consumers are sensitive to price increases,” he said. “The decision to raise prices is not taken lightly. Grocery store prices are running at more than double the rate of menu price increases.”

Several restaurant chains surveyed by the National Restaurant Association, including the Cheesecake Factory and Texas Roadhouse, said they plan to increase prices modestly this year. Previously, independent restaurants had to resist doing so, Cannon said, because any fluctuations in their pricing would send customers fleeing to the marginally cheaper national chains. But now that even mainstays like Starbucks are charging more, smaller shops may start to do so, as well.

 Merrin, from Havana Central, said that he’s raised prices about 3.5 percent  in the past six months, and he might again this year. His margins have also taken a slight hit, but he said that as far as a restaurateur’s myriad problems go, food prices are a problem he can soldier through.

“We do more with chicken thighs than beef. We do less with cheese and more with vegetables,” he said. “It’s difficult, it requires time and effort, but compared to a recession where people just don’t walk in the door, this is an easier problem to manage.”