According to the U.S. Labor Department, restaurant prices surpassed grocery prices for the year since inflation took off in mid-2021. But those eating at home didn’t fare much better, with the price of food at home up 8.4% in the last year.
“Two bags (of groceries) for $200,” said David LaMonica, CEO for the Gebrez Restaurant Group that operates Salt & Stone in Kenwood. “Remember when that got you 12 bags?”
Like many others in the pressure cooker of running a restaurant while coming out of the pandemic and into an inflationary grip, LaMonica was forced to raise his menu prices by about 5% to 6% at the beginning of the year to offset the cost of ingredients and a $1 hike in the hourly minimum wage.
“I sit down and look at a ($30,000) to $40,000 cost (deficit) and how to make up for that,” he said.
The differential ends up on the menu. LaMonica doesn’t always like how others in his industry are countering the deficit.
“I feel like what a lot of restaurants are doing is driving me crazy, adding on 4(%) to 5% in ‘back-of-the-house’ fees,” he said.
The restaurateur believes those “hidden costs” taint the industry’s image, adding yet another challenge.
“Restaurants consistently generate more in sales tax than any other industry. Those sales tax dollars pay for schools,” California Restaurant Association spokeswoman Sharokina Shams said. “Yet, their average profit margin is 3(%) to 5%. The sales tax is about double that (amount), but their costs have gone up. There’s only so much they can do.”
Ken Frank, who runs La Toque restaurant in Napa, also raised his menu prices. And thankfully, he said, 2023 has proven to be at least a little more profitable than the prior year.
“The first quarter was better than last year. That said, we were impacted by the weather,” he said.
Valon Grajqevci, who runs Tam Commons Taproom & Kitchen in San Rafael, represents a holdout in raising his prices “yet,” he said. The new restaurant owner is counting on the improving weather seasons to pull him through tough times in Marin County.
“Thank God, the sun came out,” he said. Marin and Sonoma counties have made for some cooler-than-normal temps, with fog blanketing the region and keeping people indoors.
He’s also banking on customers wanting to come out since high food prices at the grocery store haven’t abated much — especially with many foodies having no time or inclination to cook.
“If I lived alone and cooked at home, it’s almost not worth it,” he said.
And he’s got a Sacramento State University economist supporting this view.
“Grocery prices have been going up higher than anything else. Clearly, receipts are going to go up, and therefore, taxes are going to go up. And I think, in general, in most cases, if the market can afford not trying to cook at home, they’re just going to eat out,” Sanjay Varshney said. “The prices are just not falling fast enough. It may take a few months to get inflation down to 3.5%.”
For the long haul, Varshney said he anticipates menu prices to remain higher while grocery items considered commodities to dip slightly in the coming months.
Many economists predicted the U.S. inflation rate would need most of the year to return to about 2%. In the meantime, everybody’s gotta eat, prompting many to reconsider where they choose to go for that.
For now, as long as the price gains are the same, Varshney expects at least the younger generations to order out.
“With the millennials, this is the reason why we see DoorDash and Uber (Eats) benefit,” he said.
Who to send to the kitchen
Cynthia Ariosta, owner of Tra Vigne Pizzeria, singled out ingredients of an average, popular meal at her St. Helena restaurant, consisting of a pompelmo (grapefruit) margarita, Caesar salad and large Romano pizza. The meal cost someone dining out $55.09 with tax, not factoring in the tip and other fees. The Business Journal priced out, give-or-take, those same ingredients at a major supermarket and came up with $131.35.
Granted, there are leftovers with cooking and mixing at home — especially with much of the 750-milliliter bottles of tequila and liqueur as well as lime juice, prosciutto and mozzarella cheese remaining in the cupboard. Still, cooks at home would have to want to recreate the meal or use the ingredients in other meal prep to get their money’s worth.
Plus, at a restaurant, you’re being served without having to clean up. To Ariosta, that’s a bargain considering all that goes into having the food brought to the table.
“Keep in mind, that if a party of three came in to eat this meal, the following hourly labor would be involved at the average rates of pay,” Ariosta said.
She listed these hourly labor rates per worker involved:
- Bartenders, servers, bussers and food runners: $15.50
- Dishwashers: $18‒$20
- Prep cooks: $20‒$24
- Line cooks: $22‒$26
- Salad makers: $22‒$26
“That does not include employer taxes, (workers’ compensation), health benefits, et cetera, which increase the wage (by) about 25%,” she added.
In total, Ariosta first-quarter payroll amounted to 40% of sales — meaning 40 cents of every meal check dollar pays for staff wages and benefits, along with other tax commitments. The restaurateur calls the itemizing of such expenses “eye opening.”
For comparison, accounting firm Baker Tilly’s latest restaurant performance benchmark report found that labor cost for all clients was 28% of sales and 27.6% for full-service establishments.
“And just because the state is receiving increased tax revenues from restaurants and bars, does not mean that those businesses are in fact busier. Many businesses have had to increase their prices significantly to cover increased labor costs,” Ariosta said. “And even if restaurants are busier, and business is growing, it does not mean that we have recovered from COVID. Many restaurants are still trying to climb out of the staggering revenue losses of 2020, 2021 and some of 2022.”
Susan Wood covers law, cannabis, production, tech, energy, transportation, agriculture as well as banking and finance. She can be reached at 530-545-8662 or susan.wood@busjrnl.com
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