Small business checkup: Restaurants take hit from rising food prices

Monday, May 16, 2011
Banquet chef Kelly Fields prepares food before an event at The Plaza by Ray on May 5, in Cape Girardeau. (Kristin Eberts)

Throughout the economic recession, small business owners have seen price increases in everything from gasoline to health insurance to electricity. Now, food prices are going up, too, taking an extra hit on the food industry.

According to government statistics released April 15, the Consumer Price Index has risen 2.7 percent in the past 12 months, the largest increase since 2009. Coffee prices are up 27 percent, fruits and vegetables are up 23 percent and soft drinks are up 14 percent, to name just a few areas affected.

"I've seen food costs go up about 1 or 2 percent in the last six months. It's taken a hit on the bottom line, definitely," says Mark Dirnberger, owner of Bella Italia in Cape Girardeau and president of the Southeast Missouri chapter of the Missouri Restaurant Association. Dirnberger made a small price increase at his restaurant this year to cover the higher food costs. He adds that cash-strapped families are eating out less, and when they do eat out, they eat lighter meals. And while his restaurant stays busy on weekends, it does slow down on weekdays.

"Everybody's watching their pennies. Gas prices are up, delivery prices are up, labor costs have gone up," says Dirnberger. "But as a whole, the restaurant industry is still strong." Dirnberger believes the economy is starting to bounce back a little bit, and as people feel more confident about the economy, they'll be looser with their money.

Ray Ressel, owner of Ray's of Kelso, says he held off on price increases for as long as he could, but finally had to raise his prices this spring.

"There's not a lot I can do," he says. "In my business, I don't believe in shortcuts. I want to keep the quality the same, but I have to either absorb the increase or pass it along. There's not a lot more I can do without the food costs going back down."

In addition to Ressel's Kelso, Mo., restaurant, he operates The Plaza by Ray's in Cape Girardeau and The Water's Edge near Gordonville. He cites higher food costs, along with higher rents and service fees, as the reasons for his price changes.

"Every distributor I buy from, whether it's food or beer or linens, charges an extra service fee at a minimum of five dollars," says Ressel. He adds that it's not uncommon to pay $100 a week just in delivery fees, something he's never had to do before. And with gas prices on the rise again, Ressel expects the costs of food and delivery services to rise even more.

Ressel says that while families are eating out less, his "saving factor" has been the banquet and catering side of his business.

"It's grown 30 percent over the course of the recession. Why? It could be a number of factors," says Ressel. People are always getting married, and Ressel says he's booked a year out for weddings. He's also been working more charity events, probably because not-for-profits are holding more fundraisers in an effort to overcome the same economic struggles.

Ressel says he's optimistic about this year, as are many of his colleagues in the restaurant industry.

"It all depends on what will happen with food prices," he says. "I have no other ideas in mind at this point. I'm just trying to maintain quality."

Meanwhile, Ted McClellan, owner of Cape Restaurant Supply, says business remains steady. Most of his high-dollar dishwashers and ovens are sold to schools and hospitals, places not as hard-hit by the economy. The recession has changed the way his customers shop, however.

"A lot more people are fixing their equipment rather than buying new," he says. McClellan, age 68, has been in the restaurant business since he was 20, and he remembers a time when most people bought new equipment. Now, his customers want to fix what they have and buy used equipment when possible.

"There are not as many dreamers out there -- people who, just because they can cook in their kitchen, think they can run a restaurant," McClellan adds. "We don't get as many of those anymore."

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