MARCH 2008: RESTAURANTS
MAKING THE CUT
By Jamie Hartford
Restaurants statewide slice and dice to keep pace with rising
food costs.
At Mo’s Restaurants, a group of six coastal seafood
joints based in Newport, they’re going to raise the price
of the home-baked bread — two thick slices served with
pats of butter — for the first time in probably 20
years.
“How much can you really charge for bread?” asks
Mo’s VP Gabrielle McEntee-Wilson. “People are just
not going to pay for it above a certain amount.”
But the company says it doesn’t have much of a choice.
Rising food costs are threatening its profit margins, and the
story is the same all over the state, where food inflation is
expected to outpace sales growth by about around 2.5% this
year. To stay in the black, some Oregon restaurateurs are
getting creative in their efforts to increase profitability and
trim the fat. Their methods: minimize supply outlay, decrease
labor cost and increase menu prices. But making any operational
changes is a balancing act to avoid compromising quality,
sacrificing service or alienating customers.
Mo’s plans to increase the price of bread by 10 or 15
cents, in part to even out the rising cost of ingredients. The
prices of wheat for flour and milk for butter rose around 50%
in 2007, according to the Bureau of Labor Statistics. And it
doesn’t end there. A variety of factors — higher
energy and fertilizer costs, American ethanol subsidies,
growing demand for protein in the developing world, and crop
failures across the globe — have pushed food prices to
unprecedented highs almost across the board. Last year,
American consumers saw the biggest increase in retail food
prices (4%) since 1990, according to the United States
Department of Agriculture. But it is restaurant operators who
are really feeling the pinch, says Glenn Garrett,
Wilsonville-based director of business resources and
development for food distributor Sysco.
“Over the last 10 years, food inflation for restaurants
has averaged 2.3%,” Garrett says. “Last year, it
was about 6%, and the projection for the next five years is
7.5% [a year].”
And in a business where profit margins hover between 3% and
6%, and food constitutes about a third of total operating cost,
even the slightest increase can have a big impact.
“Every single day we are being confronted with different
price increases from all of our manufacturers,” says
Kevin Bechtel, senior vice president of purchasing and menu
development for Shari’s Restaurants, a chain of mid-scale
family eateries based in Beaverton. Though Shari’s posted
6.5% sales growth for 2007, much of the extra revenue went to
cover the rising cost of food and other products.
“Our profitability is not reflective of our sales
growth,” he says. “Our sales increases, right now,
are really just helping us to maintain; we’re not getting
ahead.”
There’s no real end in sight, either.
“I think that we’re entering into an era where
you’re going to have very strong prices for agricultural
products for some time,” says Dalton Hobbs, assistant
director at the Oregon Department of Agriculture. He agrees
with experts who posit that the current market conditions for
food products could persist for a decade or more, and
it’s unlikely that prices will ever return to the levels
seen in 1990s.
FOR SHARI’S 98 RESTAURANTS throughout Oregon,
Washington, Idaho, California, Wyoming and Nebraska, the front
line in the war on food cost is in the back of the house.
“Instead of bringing in a pallet of product, we’re
bringing in a truckload of product,” Bechtel says.
“Bread used to come five days per week, but to manage
cost, we’ve reduced it to three days per week.”
Combining shipments, he says, helps cut packaging and
transportation expenses. The chain, which has 46 locations in
Oregon, is also working with management teams to pare down
waste in the kitchen, but efforts to nickel-and-dime on the
supply side are not enough. To maintain profits, Shari’s
has increased menu prices by taking away the option of a $1.49
up-charge to add soup or salad. Those items and the extra cost
are now part of all entrees.
Increasing the selection of other high-margin peripheral
items, such as drinks, desserts and appetizers, has also
helped, but Bechtel admits that with rising fears about the
state of the economy, that is a segment where customers are
likely to start cutting back.
At Mo’s, the price of bread and butter isn’t the
only thing that’s going up. In anticipation of the
high-traffic summer season, the company plans to raise the
prices of a number of other menu items, as well.
“We watch our food costs, and we try to keep the prices
as low as we can, but when they get over a certain amount, we
have to raise our prices,” McEntee-Wilson says.
Customers, she says, have noticed, but there’s little
else the owners can do if they want to stay profitable.
“People are looking down at the fish and chips at $15.95
and thinking, ‘Wow,’” she says.
Compounding the steep increase in food costs, McEntee-Wilson
believes, is Oregon’s minimum wage, which went up 15
cents in January. It is among the highest in the nation and
doesn’t allow employers to factor in a tip credit.
“It’s just kind of adding salt to the
wound,” she says. “We’re not against [minimum
wage increases], but it does make a difference for small
business.”
Mo’s also offers its employees a health insurance plan
and pays part of the premium, but if margins continue to
shrink, the company might re-evaluate its policy.
“It is a discussion we have had,” McEntee-Wilson
says. “For us it’s very important to have this
available to people, but it is something that you have to look
at.”
To avoid such measures, Mo’s, like Shari’s, has
been working with suppliers to cut costs wherever they can.
“With six restaurants, you sort of have a little bit of
buying power, which is wonderful,” McEntee-Wilson
says.
THAT’S A BENEFIT that also has helped Restaurants
Unlimited, a Seattle-based company that in July merged with
Portland’s Pacific Coast Restaurants, owner and operator
of 27 full-service restaurants, including Portland City Grill
and Manzana Rotisserie Grill.
“We doubled the size of the company overnight, so that
can give you some serious leverage,” says president and
CEO Steve Stoddard. He says the company is also looking at
labor-saving options, such as working with suppliers to develop
customized pre-prepared soups and sauces.
But independent restaurants such as Geppetto’s in
downtown Ashland don’t have that luxury. With little room
for bargaining, they are at the mercy of rising food costs, and
in a small town like Ashland, raising prices above
competitors’ will do nothing but drive customers down the
street. Instead, co-owner Ron Roth is finding other ways to
save.
“I have tried to cut back on the staffing a little
bit,” he says. “I’ve been scheduling one less
person per day and filling in the gaps myself.”
Rich Meyer, head chef of Higgins restaurant in
Portland, plans a dinner menu. Higgins is coping with
rising food costs by pricing its menu accordingly.
“People expect to pay more for quality,”
Meyer says.
PHOTO BY LEAH NASH
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It also helps that Geppetto’s grows some of its own food
at a local farm. As food gets more expensive, Roth says he
plans to ramp up harvests, including lettuce.
“There’s a gap in the supply where the price of
lettuce will double or even triple at a time when the local
stuff is in its peak,” he says. “We’re going
to try to hit that gap this year.”
That kind of penny-pinching is something they don’t
worry about at Higgins Restaurant & Bar, a high-end eatery
in downtown Portland. Higgins was founded on a commitment to
using locally produced, organic products for its Northwest
regional fare, and as such, chef de cuisine Rich Meyer is
accustomed to paying a premium for his inventory. The
restaurant’s menu changes weekly and seasonally, with
prices reflecting market value, and customers don’t seem
to mind that the cost gets passed on to them.
“People expect to pay more for quality,” he
says.
Higgins, though, is the exception rather than the rule. For
most Oregon restaurants, rising food prices are a formidable
obstacle to overcome, and they’re not going away. As
operators dig in for the long haul, price increases and cost
cutting are bound to remain on the menu.
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