Restaurants fight to overcome rising costs, sagging demand in tough economy

If the difficulties facing Springfield restaurant owners were a four-course meal, the first course is increasing food costs. New fuel surcharges are served up next, and new city licensing fees are finally plated.

Add in a not-so-sweet dessert of decreasing patron numbers, as consumers go out to eat less because of their own financial strains, and the result is tough to swallow.

Food, fuel and fees

Finding balance amid higher costs and lower revenues hasn’t been easy for local restaurateurs.

“We’d have to increase prices 10 percent (to make up for increased costs), and we couldn’t make a hit on our menu like that,” said Joe Sunseri, owner of Valentine’s restaurant on South Campbell Avenue.

“It’s just coming at us from all angles right now, and it’s not letting up.”

The bulk of restaurants’ higher costs comes from food prices; costs for dairy products, eggs, bread and meat have all increased by double-digit percentages in the last year, according to the Missouri Restaurant Association.

“Food costs are, depending on the restaurant you run, 25 percent to 40 percent of your operating costs,” said Jerry Shackette, president of the Springfield/Branson chapter of the Missouri Restaurant Association and a restaurant management professor at College of the Ozarks.

“So when that raw cost goes up, boy that’s tough on owners,” he added.

For restaurants, like businesses in other sectors, pricing pressures can be traced back to high fuel costs.

The cost of diesel fuel, which powers many of the vehicles carrying food and supplies to eateries, has increased by 64 percent in the last year, according to data from the U.S. Energy Information Administration, and Sunseri said many restaurant suppliers are passing the additional costs on to their customers via fuel surcharges of $5 to $7 per visit, and increases in the general costs of their products.

“Linen companies have been doing it for a while – they started it first,” Sunseri said of fuel surcharges, adding that food purveyors and suppliers of carbon dioxide for soda fountains are now following suit.

Cost concerns are soon to be compounded by a new restaurant licensing fee from the Springfield-Greene County Health Department, which in January will begin assessing anywhere from $100 to $325 annually for restaurant licenses depending on the eatery’s risk level.

Those funds will pay for eatery inspections required for licensure.

While Sunseri, who also is vice president of the Springfield Independent Restaurant Association, said he and other restaurant owners are plotting to fight the licensing fee.

In the meantime, the added cost is one he’ll have to absorb or pass on to patrons.

“We’re providing a public service, and we have to keep our restaurant clean as part of running a business,” Sunseri said.

The health department has pointed out that all major metropolitan areas in Missouri have charged similar fees for several years.

Assistant Health Director Clay Goddard said that while the timing is not ideal for the new charge, it’s a necessary cost of doing business.

“It’s something we’ve held off on for as long as we possibly could,” Goddard said. “We’re at a point where we have to make a decision. Do we let our services degrade? Do we make a choice between restaurant inspections and immunizations for kids?”

Decreasing demand

Rising costs, however, are a double-edged sword; customers also have to pay increased costs at the supermarket, meaning restaurants are also facing slowly decreasing income from fewer customers or customers who are spending less for restaurant dining.

Nancy Miller, owner of Nearly Famous Deli & Pasta House, said that her eatery’s revenues are off slightly from last year, though she declined to disclose specific revenue figures. She said the decrease is not due to fewer patrons but to more frugal ones.

“You see these money-saving tips in the media for when people go out to eat, and that’s killing us,” she said, adding that her customer numbers have held steady due mostly to her lower price points. “I keep thinking, ‘Be quiet! Don’t tell people not to order dessert or (that they should) share a meal!’ It’s scary how that can get in somebody’s mind and change the way people think.”

While it may be too early to tell exactly what the decrease in restaurant customers is going to be, Shackette said an across-the-board drop in patron numbers is almost inevitable.

“We were forecast for 2008, for restaurants in Missouri, to increase by about 4 percent in revenue, but I’d be looking for an increase of 1 percent or maybe even flat (sales),” he said. “Gas (cost) isn’t going down any time soon, and people are going to have to reprioritize their spending.”

Sunseri said he doesn’t see the change as temporary, either; he predicts that the current economic climate is going to mean a fundamental shift in consumer habits – and a potential shake-up for the restaurant industry.

“It’s not at the critical phase where we’re down in sales that much, but it’s enough to get our attention and let us know that something is going on here. People aren’t going out as much and we have to pull more people in,” he said.

A new way of life

Increasing costs and decreasing revenues mean restaurant owners have to change the way they do business, according to Shackette. Part of that change means reducing waste and increasing efficiency – and that means shrinking portion sizes.

“Operators are coming to terms with how much food they scrape,” Shackette said.

“A big part of that comes from portions – a lot of that food is not eaten and is going out the back door in the trash. I think chefs will have to get more creative about using smaller portions and being more efficient in the kitchen,” he added.

Sunseri already has started in that direction. He’s developing a separate menu for weekday lunch and dinner, with smaller portions and lower prices, to be able to absorb some of the increased costs without passing the higher prices on to customers.

Both Shackette and Sunseri agree that the hard times will be a wake-up call for owners and that creativity, in both food and atmosphere, is going to be the key to future success.

“A restaurant manager today has to be active and engaged,” Shackette said. “If you sit and let it happen to you, you’re going to have problems.”

Food Costs on the Rise

Change in Missouri prices from May 2007 to May 2008:

Wheat – up 60.2 percent

Corn – up 43.6 percent

Eggs – up 13.8 percent

Liquid milk – up 12 percent

Source: U.S. Department of Agriculture