Rising Food Costs Take A Bite Out Of Restaurant Profits

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(Sacramento, CA)
Wednesday, May 21, 2008

The restaurant business isn’t comfortable with inconsistency. Customers like reliability. Owners and chefs like stable costs. So, when the price of rice shot up, it got the attention of sushi chef Billy Ngo [noh] at Kru restaurant.

You eat rice with everything. On all of our main plates, which would be entrees, you get your veggies, your protein and also you get a bowl of rice. And then sushi. Every sushi has rice on it. The rolls. Everything, so rice is very important.
Rice is so important that even this medium-sized restaurant goes through 800 pounds a month.
Right here,[heaves] so here it is. It says “California grown Organic Calrose rice.” And the brand on top says Ka Hu.
Ka Hu is a boutique rice grown around Marysville. It was pricey to begin with, about $33 dollars for a restaurant sized bag weighing 50 pounds. It’s now $40 dollars a bag. And with sushi rice is fish, which is also being priced at historic highs. But Chef Ngo and his sushi colleagues aren’t the only ones with food cost issues.
A few blocks up J Street, PIZZA is the economic punching bag -- from the cost of homemade crust to the cheese on top.
FLOUR…outrageous prices. I can’t even keep up with the re-pricing. It seems like I almost have to reprice things on a monthly basis. … The way it’s been going…
Peter Torza opened Gianni’s restaurant last year a few doors away from another of his operations – Harlow’s. He gave Gianni’s a breezy Miami Beach décor. But the cost of ingredients became anything but laid back.
Pretty much getting it from everything, I mean even when you look at the way you cook it.  Gas prices are going up not only in the tank but coming up out of that flame also. The pizza oven has to be very hot and you have to leave it on all the time.
NEXT DOOR to Gianni’s is GV Hurley’s, with its sky-lit bar scene and cozy booths. The menu’s got lots of variety from salads to meat, so you’d think it could avoid getting battered by tempestuous commodities -- like rice or wheat. Instead, GV Hurley’s chef, David Hill, says ALL his food costs have gotten a jolt.
You don’t want to panic. Hopefully, this is a bubble in the market.
But panic might be justified here. GV Hurley’s opened six weeks ago. It’s been busier than expected, but the business plan’s profit was based on food cost numbers that stopped working on day one.
They have to change now. Either we re-evaluate the business plan or re-evaluate our menu prices.
Chef Hill says raising prices can be risky, even if it’s justified.
I hope customers understand when people have to raise prices that we’re not doing it out of greed.
The challenge for restaurants is they don’t have a lot of wiggle room to dip into reserves. Compared to, say, Exxon’s first-quarter profit of 17%, the typical restaurant operates between two and three percent. Jot Condie of the California Restaurant Association says a lot of restaurants are now losing money.
It is not uncommon to see independent restaurateurs dipping into their personal savings, mortgaging their future. What we don’t know is how long this is going to last.
If today’s prices become the new norm – GV Hurley’s Chef David Hill says he can only go so far in passing on costs.  
We do not want a $15 hamburger.
Neither do your customers.