Restaurants are finding themselves caught in the middle between paying for record-setting increases in food costs and consumers who are feeling the economic strain themselves.
Just last week, the U.S. Department of Labor reported food costs jumped 0.9 percent from March to April, the biggest monthly increase in 18 years, but prices for dining out grew one-third of that - 0.3 percent - as consumers held back on discretionary purchases and focused on necessities such as food from grocery stores.
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So what is a restaurant to do? Raising prices to cover higher costs could mean even fewer customers.
"Most restaurants are looking at modifying the menu to select items that are cost effective," said Todd Hanley, general manager for the Cup Café at the Hotel Congress, 311 E. Congress St., and president of the local restaurant alliance called Tucson Originals. "The best way to do that is to develop your menu with items that are in season. As an example, beef is a little more cost effective right now. So there are more beef items on the menu."
Hanley also said it is more important than ever to manage the business tightly, making sure portion sizes and presentations are executed perfectly.
"People will still pay for good food as long as you are consistent with it," Hanley said.
Some food costs are going up faster than others.
"Flour is one thing that has been staggering," said Gino Marinelli, owner of Roma Café, 4140 W. Ina Road. "I used to pay $5 for a 25-pound bag of it. Now, that will cost me $15. Mozzarella cheese has doubled, the oils we use for dressings have doubled. And now as the euro gets stronger against the dollar, all the imports of pasta and oils from Italy will cost more. It seems to me the good old days are gone. The prices are so high now and we are buying it. So should it ever come down? We are in a storm and it is getting worse."
Overall food costs were up 5.1 percent in April over the same month in 2007, bread was up 14.1 percent and milk was up 13.5 percent, according to the Labor Department. In some cases, restauranteurs are looking at alternatives that might help lower costs.
"In meeting with my mainline distributor, I approach it more as a partnership," said Michael Luria, owner of Terra Cotta, 3500 E. Sunrise Drive. "The reality is we need to contain costs. So we will sit down together and see how we can do that without sacrificing on the quality of the product."
Luria is also pressing vendors to match competitors’ prices. As a result of comparison pricing, Luria is changing vendors for the cooking wine he purchases.
"I will realize a 20 percent savings without compromising the quality of what I offer," he said. "You really have to squeeze every ounce of effectiveness and cost savings out of everything."
Fox Restaurant Concepts has adapted its ordering procedures. Mike Geavaras, vice president of operations for Fox’s fast-casual operations, said all of the Scottsdale-based chain’s restaurants are ordering supplies as a group to try to take advantage of increased buying power.
"We are lucky that we are able to use similar items in all our concepts," Geavaras said. "Now, instead of buying for a month, we buy for everyone and buy for three months at a time. This saves on shipping as well as we receive a discounted price for ordering together. So the costs are higher now, but we are committed to getting around it as best we can."
John Steen, Fox’s regional manager for Tucson, said the company is focusing on watching its controls at each restaurant.
"By combining our stores we are able to negotiate the price ahead of time so we don’t have to change our menus, which is nice," Steen said. "We just need to make sure we are ordering properly and not wasting."
Although Tucson Originals restaurants are not part of chains, the group has a plan for group-buying for member restaurants under which supplier U.S. Foodservice has a discounted pricing structure.
"Any time you can pool your buying power you will be in a better situation," said Hanley. "You can buy in bulk and save money by cutting down on trips. It is just a matter of capacity and cash flow."
Nationally, fast-casual restaurants are responding to their pricing squeeze with specials, including multi-course meals sometimes priced under $10 per person.
Applebee’s is one chain facing challenges. It was acquired last year by IHOP, which now calls itself the world’s largest full-service restaurant company with a combined 3,250 outlets.
Miles McMillin, senior manager for communications at Applebee’s, said his company is increasing its focus on delivering value.
"Applebee’s buys many of its commodities on long-term contracts, which allows us the ability to lessen the impact of increasing costs," he said as part of a company statement. "Additionally, our expansive menu and variety of different offerings gives us the flexibility to steer around short-term price spikes that may affect specific ingredients."
One aspect of the price squeeze facing restaurants is that consumers are seeing "more specials and incentives than they may have ever had in the past," said Terra Cotta’s Luria.
Contact reporter Joe Pangburn at jpangburn@azbiz.com or (520) 295-4259.
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