US restaurants spending 20% more on certain food items due to food-price inflation, industry officials say
January 7, 2013
– It might not be only the heat of the kitchen restaurateurs feel this year.
While food-price inflation was a typical 2.2 percent during 2012, it's expected to be nearly 4 percent, maybe more, during 2013, as the impacts of last year's drought finally come into play, according to a recent report from the U.S. Department of Agriculture.
Much of those food-price increases are expected to come right away, within the first quarter of the year, and meat and dairy products will likely see the biggest of the increases, experts say.
Corn and soybeans -- key ingredients in feed for beef- and milk-producing cattle -- saw sharp upswings in prices during the past several months, since drought limited harvests of both crops.
Those extra costs for the livestock industry during recent months will now be passed on to the next in line, and that spells challenges for steak houses, diners and dives, according to USDA economists, and Colorado State University agriculture economist and professor Stephen Koontz.
"When food prices increase, consumers typically eat out less, and, obviously still needing to eat, go to the grocery store instead," Koontz said. "They may change what they buy at the grocery store to save money here and there, but they still have to go.
"They don't have to go out to a restaurant, and they won't, if prices are more expensive."
Matt Larson -- managing partner with Kenny's Steak House in Greeley, who's been with the business 18 years -- said fluctuations in food prices and tight profit margins are nothing new to the industry.
But 2013, with the effects of 2012's widespread and historic drought coming into play, and with lingering uncertainty in the economy, could be as interesting as any other year he can remember.
Larson said food prices have the biggest impact on profitability for restaurants.
In previous times when food prices spiked, Larson said he's had to cut back on advertising and marketing, as well as labor, to provide the same quality of food without increasing prices too much on the menu.
But those strategies are already in place now.
Larson said Kenny's has hired less during the past four years than during any other four-year period that he's been with the restaurant.
"I can't remember the last time I hired a kitchen guy," Larson said with a slight laugh. "We're doing more with less, and the employees have done a fantastic job.
"But how much more can you cut back?"
Larson said Kenny's was fortunate to see more business in 2012; sales were up more than 20 percent, he said.
At the same time, though, because they were buying more supplies to keep up with the business upswing, and because food prices were increasing toward the end of the year, Larson said the restaurant was spending 20 percent more on certain food items by the time 2013 rolled around.
Larson said he's hoping Kenny's long-standing relationship with the community will be enough to continue bringing loyal and new customers to the restaurant.
"We're just kind of in a wait-and-see type of mode right now," Larson said. "No need to overreact yet, but we're certainly keeping a close eye on things."
Unlike Kenny's, other local restaurants don't have the luxury of a loyal clientele to fall on in the difficult times.
Tim Veldhuizen plans to open the Greeley Chophouse in downtown within the next couple months, and increasing food prices will only add to the challenges a restaurant usually faces when it attempts to get off the ground.
Veldhuizen said, though, being new at a time of food-price uncertainty has its perks. Not yet locked into selling certain items, he said he can spend the next couple of months finalizing a menu that not only takes into account what customers want, but is also based on what food will be affordable.
"Some restaurants cut back on the quality of food they serve when prices get expensive," he said. "We won't do that. We'll figure something else out."
Alex Kantor with Cavatappi -- a mac and cheese restaurant that opened two months ago and could battle high dairy prices during its early stage -- echoed Veldhuizen's comments.
"We certainly won't sacrifice quality," Kantor said. "You make cuts here and there to deal with food prices when they increase. However, there's only so much you can do. At some point, it has to fall on the customer, with higher prices on the menu, and the restaurant has to eat some of that loss, too.
"We'll just see what happens."
When food prices increase, consumers typically eat out less, and, obviously still needing to eat, go to the grocery store instead. They may change what they buy at the grocery store to save money here and there, but they still have to go. They don't have to go out to a restaurant, and they won't, if prices are more expensive.
-- Stephen Koontz, CSU agriculture economist and professor
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