Restaurant financial concerns that impact you
This column is a bit different from the usual ones that focus on the you — the consumer.
This time, I will share insights into the struggles that restaurant owners deal with day in and day out. Why? They all trickle down to you.
Almost every conversation I have with clients starts with “before COVID …” They are longing for the days when their problems — staff showing up late, equipment breaking down, customer service glitches — were within their control.
Now, the biggest stressors, which cut into sales and profit margins, are out of their control. Meanwhile, customers — understandably — are reacting by going out less, spending fewer dollars when they do go out, and looking for the cheapest alternatives.
Labor — uncontrollable in every way
Frustration No. 1 is wages, wages, wages. The cost of labor in some states has jumped 30% or more in the past few years. In many areas, the minimum wage will jump another 25% in the next 18 months.
One client’s payroll in 2022 was $300,000 and today, with the same number of employees, it tops $400,000. Unfortunately, owners don’t get the opportunity to communicate with customers and show them that $100,000 increase in payroll is going to force prices up.
While minimum wages rise within states, cities can go even higher. One area in California implemented a $20 minimum wage for fast-food restaurants. Sounds good, but the problem is, most politicians have no idea how business works.
Two things happened:
• Many cooks left their restaurants because they could work in fast food and get a $5 per hour raise.
• Restaurants were forced to increase pay by $5 or more an hour. There is no way for owners to predict this type of overnight payroll change of 25%.
Food costs aren’t what they used to be
Owners look back with fondness on the days when they might increase menu prices once a year. I have seen some of my clients raising prices and reprinting menus weekly.
But what can you do when egg prices go from $2.86 a dozen (24 cents each) to $10 a dozen (83 cents each)? The cost of a three-egg omelet goes from 72 cents to $2.49! Again, this was unprecedented, unpredictable and out of the owners’ control.
Owners also are living with the results of tariffs, which have driven up the cost of coffee more than 20% and in some cases 50%. Tea has seen a rise of as much as 80%. Tariffs have increased beef, seafood and poultry prices by as much as 5%. Some food prices have gone up and down so dramatically over the past 18 months that many owners find themselves changing prices and offerings monthly.
Government picks our pockets
In Illinois, employers with five or more employees are required to offer a 401(k) or similar retirement program. They are not required to match (at this time), but many owners are now spending $3,000 to $5,000 a year for someone to set up and administer the program. Another thing out of their control.
The state also requires employers to provide a minimum of 40 hours of paid leave each year, regardless of the number of employees. Again, nice idea when you’re the governor, but what about those businesses with only two to five employees losing 25% of their workforce and paying overtime to get the work done while paying the worker who’s on leave?
The moral of the story
The restaurant industry is tougher than ever, and I want consumers to understand the whole picture.
Believe me, with every price increase, owners are thinking of you. They understand that when they raise prices, they need to make sure their staff is taking extra good care of you, your family and friends, and that you are still seeing value in dining out.
• Izzy Kharasch is the founder of Hospitality Works, a consulting firm that has worked with 700+ restaurants and small businesses nationwide. He is offering Daily Herald restaurant owners a free consultation by contacting him at Izzy@HospitalityWorks.com.