Wednesday, July 16, 2008

Crains Newspaper article about food cost.

Recipe for trouble Rapidly rising food costs, newly frugal customers are challenging restaurant industry stalwarts

.By KATHERINE FAY4:30 am, July 14, 2008

Rick Cassara says his sales are off by a “good amount” this year. There has been far less business from the convention center, hotels and tourists, but those are just a few of the problems encountered by the owner of John Q’s Steakhouse in downtown Cleveland.Like most restaurant operators, Mr. Cassara is feeling the pressure from increased operating and food costs. But on top of big bills, restaurants are serving a customer base that’s trying to pinch pennies and scale back dining habits.“We’re a steakhouse, so we can’t really take away steaks,” Mr. Cassara said, “But we are buying less and more specifically. We haven’t run out of anything yet, but we are running tight.” He did not specify how much his business is down.

In an Ohio Restaurant Association survey last October, 23% of more than 100 respondents said they could be out of business within a year if business remained the same, said Mark Glasper, director of communications. But business hasn’t been static; it’s become worse. Almost across the board, the association’s 2,500 members are reporting sales decreases of 10% to 20% since January, Mr. Glasper said. “Our members are being hit from both directions,” he said. “A lot of them are on edge. Restaurants operate on razor-thin margins, and when costs go up, they’ve got to do something.”Wholesale food prices jumped 7.6% last year, according to the U.S. Bureau of Labor Statistics, and on a 2008 year-to-date basis through March, they rose an additional 8.5%, causing restaurants to consider raising meal prices, creating more value specials or offering smaller portions.

In addition, the economic turndown and the higher cost of doing business have led some restaurants to cut staff or rework employees’ hours and positions, Mr. Glasper said.“We want the public to understand what is happening to their favorite restaurants — to understand why all this is happening, why prices are increasing — not because the owner is gouging them, but because it is a question of survival,” he said. Sweating the details

Dante in Valley View has seen business decline 10% to 15% since the restaurant, formerly known as Lockkeepers, changed hands last September, said Dave Eselgroth, general manager and sommelier.“I think that if we weren’t in an election year, with $4 gas and a bad housing market, that things would be better,” Mr. Eselgroth said. “The combination of those variables is causing problems, but people will still go out to eat. If their lives are miserable, they’ll need a piece of sunshine.”While people still are dining out, Mr. Eselgroth has seen the number of customers splitting menu items increase. Dante’s Wine by the Glass program, which includes a 90-wine selection, has flourished, while the number of customers ordering expensive bottles of wine has decreased significantly.“Maybe gluttony is down a bit, too,” he said.

Though Dante is trying to cut back by ordering lesser-known cuts of meat and eliminating two management positions, it may not be enough. With distributors instituting fuel surcharges on deliveries, Dante expects to pay $8,000 to 10,000 in additional expenses this year.“We are definitely going to have to reflect that in portion size and menu pricing,” Mr. Eselgroth said.

At Nemo Grille in Avon, the costs of paper products, toilet paper and cleaning chemicals also have skyrocketed, said Michael Walsh, head chef. Nemo recently switched its to-go boxes from a 57-cent brand to a 23-cent brand, changed to cheaper cooking oil, and reworked produce delivery schedules to once a week from twice.“We’re trying to find ways to avoid going directly to the menu prices,”

Mr. Walsh said. “It’s the hidden things, though — the paper products, oil and fuel charges — that went from being dirt cheap to being there. You spend $18 for a case of paper towel rolls, and look back and it was $13 three months ago.

”Papa Joe’s in Akron has seen its head count increase slightly, but only due to the strategy of reducing menu prices to draw more customers. By taking more profitable items like pasta dishes and lowering the price, Papa Joe’s can make money while creating affordable items for customers, said Jeffrey Bruno, co-owner.“You have to try to understand where the customer is coming from,” Mr. Bruno said. “You can’t take the time to look at high food costs and go crazy. You have to keep costs in control and provide help to people.”

Working 'harder and smarter'
Some restaurants are holding up just fine, though it takes a lot of effort to keep business growing.Pier W of Lakewood, for one, has seen business go up at least 10% since the start of the year, said Guillermo Espejelli, general manager. He attributes its growth to the restaurant’s culinary team, ambi-ance, fresh seafood and service.“We are very humble because we have friends in the business who aren’t doing as well,” Mr. Espejelli said. “I do believe that when people go out, they are coming here. They’re saying, ‘I’m not going out every two weeks, but maybe every three.’

They want their money’s worth and are coming to us for the whole package.”While Blue Point Grille in Cleveland’s Warehouse District has seen the price of its most expensive and popular ingredient — cold-water domestic black grouper — double in the past five years, the key to keeping business up is through maintaining quality and marketing, said George Schindler, president of Hospitality Restaurants.

The restaurant is in the process of remodeling its bar area to give it a more casual feel so it can attract the growing number of young, professional residents in its neighborhood. Blue Point also is participating in Date Night in the District, a combined effort among 12 Warehouse District restaurants that allows couples to enjoy three-course, fixed-price meals between $39 and $99 on Friday nights throughout the summer.Noted Mr. Schindler: “When things are slower, we work harder and smarter. We know things will turn around, and when they do, we hope they’ll take off and that we will be stronger than ever. Until then, our customer base will recognize the quality of what we do.”

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