Restaurants explore options to avoid price hikes

Operating a restaurant, to say nothing of running three, is a complicated matter, even in the best of economic times.
Jeff Good has his share of challenges these days. The effects of last year’s Midwest drought and shorter-term volatility, combined with gas prices still well over $3 per gallon in much of the country, equal greater expense in running the three restaurants he co-owns with Dan Blumenthal — Sal and Mookie’s, Bravo! Italian Restaurant and Bar, and Broad Street Baking Co.

Like other restaurateurs, he’s trying to take those financial blows to the gut without passing the expense on through menu price increases to customers he says are turning out in record numbers to his establishments so far this year.

“It’s absolutely the last thing for a successful restaurant to do,” Good said of raising menu prices. “We don’t want to violate that (customer) trust.”

But it could prove difficult for restaurants to keep prices as they are if current economic conditions continue throughout the year. Restaurants often are hesitant to significantly raise prices on customers who themselves continue to pay more for gas, groceries, utilities and other essentials, at the risk of driving those diners to eat elsewhere in an industry that remains highly competitive.

Prices for many kinds of food, particularly things like beef and corn, have risen noticeably since last summer’s drought that crippled a range of crops, especially in the Midwest. Gas prices continue to add expense to the delivery of food and supplies to restaurants.

The higher costs also are taking hold at a time of year typically considered slow for the restaurant industry.

While some days like Super Bowl Sunday and Valentine’s Day can drive business into restaurants, it’s not enough to stem the overall lack of wintertime customers, says Clint Case, general manager at Flowood’s Mugshots Grill & Bar.

“You always look at stuff, but you don’t want to change your prices all the time” and expect to keep customers, he said, adding his restaurant’s prices haven’t risen in a couple of years.

The U.S. Department of Agriculture last month in an inflation forecast said it expects food prices in general, including at restaurants and grocers, to increase 3 to 4 percent this year, a figure the agency says “is above the historical average ... inflation is expected to remain strong, especially in the first half of 2013, for most animal-based food products.”

Damage to the corn crop used to feed cows, combined with a nationwide herd thinning of slaughter animals, has meant price increases of up to 25 percent in recent months for the more expensive center-cut filets and bone-in ribeyes popular with Al Roberts’ customers. He and Bill Latham co-own the metro area’s Table 100, Babalu Tacos and Tapas and Five Guys Burgers and Fries restaurants.

He says expenses are up practically across the board, not only for the food itself but things like fryer oil.

Roberts says he and Latham are “hunkering down” and hoping to not have to increase any menu-item prices. “We try to look at commodities (prices) three to six months out.”

Good says more recent weather damage to some of California’s lettuce crop has about tripled the vegetable’s cost, although he says that cost should soon start to drop as weather conditions out west improve.

The drought-related increases have joined what have become typical aspects of doing business in a recession-era restaurant landscape: commodities price increases for things like feed that have often trended up the way oil has; the setting aside of corn for ethanol production, in turn creating a tighter supply that’s caused the crop’s prices to rise; and fuel surcharges from vendors delivering food and supplies.

Restaurants generally increase prices only after all other means of cutting expenses have been exhausted, says Mike Cashion, executive director of the Mississippi Hospitality and Restaurant Association.

“It’s just a question of how long they’ll be able to hold out.”

Restaurants’ ability to avoid price hikes and keep customers happy could help shape the state’s overall economic performance this year.

In a state that counts farm-raised catfish and other delicacies among its biggest draws, the restaurant industry employed 110,200 people, 10 percent of Mississippi’s overall work force, in 2012, according to the National Restaurant Association.

For Good and Roberts, re-examining the menu and what’s spotlighted tends to have less customer impact in keeping expenses in check than higher menu prices.

Good says steering specials and discounts from beef-related menu items to other offerings can help, along with buying food items from local vendors as much as possible to save on delivery costs.

Roberts’ restaurants are part of a collective of Southeastern restaurants that buy from vendors under a “group purchasing” framework that allows participating restaurants to buy in bulk and save 3 to 3.5 percent per year and qualify for individual rebates.

Case said the effect of current economic conditions likely won’t be felt as dramatically as winter becomes spring, noting the Dixie National Rodeo and a bevy of area youth-baseball tournaments typically mark the start in customer uptick at his restaurant.

Things like fuel surcharges and commodity-price volatility are likely here to stay, Good says, adding restaurants need to incorporate those factors into the cost of doing business as best they can to not alienate too many diners.

Roberts, meanwhile, says the complexities aren’t hampering his plans to bring Babalu, Table 100 and Five Guys restaurants to other parts of Mississippi and the Southeast, an effort he and his business partners already have raised more than $10 million to accomplish.

“We are full steam ahead. There are always going to be headwinds in this business. You just have to deal with it.”