Rising energy and food costs pinch area restaurants
June 12, 2008
Ron Reisner is worried. In recent months, he has seen operating costs for his downtown Hartford hot dog restaurant, Rosco's Big Dog, rise dramatically. The normally upbeat hot dog expert sounds panicked. He's not alone. Restaurants all around Connecticut are reporting the need to increase prices, serve smaller portions and generally improvise to survive in a challenging economy. And then there's the food vs. fuel problem.
"It's hurting me ... really bad," Reisner says. "My costs are up about 45 percent. And that's just food costs."
The costs of Reisner's staples—hot dogs, buns, fries and specialty toppings—have skyrocketed as he's seen his customer base dip. He will probably have to raise his prices or close his doors.
"In the last two weeks, my buns have gone up three cents each," Reisner said. "Usually when you see price increases, they're subtle. If I'm paying $3 for a pack of 16 buns, it'll go up 10 cents. You can eat a cost of a penny per bun. But not three cents in two weeks. On top of that, my hot dogs are going up 20 cents a pound."
Reisner isn't the only Connecticut restaurateur feeling the pinch. Bob DeZinno, president of the Connecticut Restaurant Association, which represents approximately 1,000 state restaurants, described the recent spike in restaurant operating costs as "brutal." Restaurants are also getting hit by the high cost of gas.
"Absolutely everything that comes to any restaurant is delivered with $5-a-gallon diesel," DeZinno says. "So the costs are sky-high."
While businesses everywhere are feeling the fuel price crunch, the food service industry is dealing with unique challenges. Droughts in wheat- and rice-dependent countries have created a worldwide run on grains. Corn could work as a substitute, but the U.S. government is buying up corn for use in making ethanol.
"Because corn is being used for energy, it's more cost effective for farmers to sell their crop for that use as opposed to food," said Jim Kohler, spokesperson for national restaurant wholesale supply chain Restaurant Depot. The price of corn doesn't just impact the cost of a cob. Corn is used in baking powder and cooking oil, and is a food source for livestock, which inches meat prices up.
"There's a lot of corn-fed, corn-finished beef in the Midwest," says Erik Parks, co-owner of high-end Hartford restaurant Dish. "Not only is that subject to the rising cost of transportation, but corn is also being used for biodiesel and biofuels."
United Nations expert Jean Ziegler recently described the use of arable land for biofuels as a "crime against humanity." An International Monetary Fund report concludes that biofuel use has raised food prices 15 to 30 percent worldwide. The U.S. Agricultural Department, however, has repeatedly denied that biofuels are the main factor in the worldwide food shortage.
Frustratingly, corn-based ethanol has an energy density one-third less than gasoline, so fuel efficiency suffers dramatically. Also, it can't be transported in pipelines and must be distributed by truck or rail. Ethanol can be made from sugar, however, and Brazil has developed a very efficient process for it. Cellulosic ethanol, made from switchgrass and other fast-growing crops, is also showing a lot of promise, though the production processes are still embryonic.
Many restaurants can still compensate for rising food and fuel costs with liquor sales. Beer is a big problem, however, because the cost of hops (a critical ingredient) has increased tenfold in the last year.
"For all practical purposes, the price of every single beer we brew here has doubled," said Steve Boucino, co-owner of the Cambridge House Brewpub in Granby.
Boucino said the two main suppliers of hops, California and Germany, have been plagued, respectively, by warehouse fires and draught. In response, Cambridge has raised its pint prices by 50 cents, is experimenting with spices as hops substitutes, and is coordinating large orders with local breweries. It's also looking at other hops gathering methods.
"At the Cambridge House, our small hop garden used to be just for show," Boucino said. "But we're throwing our hops in the pot now, my friend."
At best, the garden will produce 10 pounds of hops this year. But with current prices, that's a savings of $400.
In an April Washington Post article, restaurant operators discussed different tactics they've adopted to mask their smaller portions, like skewering shrimp and artfully cutting salmon to make dishes appear larger. Some area Indian and Chinese food restaurants have reportedly cut back on the rice that usually accompanies dishes. The Hartford Courant recently reported that some area restaurants stopped offering complementary bread baskets, unless specifically requested.
Parks said he's raised the price of some entrees between eight and 12 percent in reaction to rising costs. However, Dish has expanded the menu to include lower-cost entrees and has re-thought portion sizes, both to maximize food inventory and minimize the number of increasingly costly to-go containers.
"What we've discovered is putting exactly the right portion on the plate is the best thing for the customer," Parks said.
It's an illustration of the lateral thinking restaurants have to make in order to survive in the current climate.
"What most of the operators are doing, from what I hear, is tightening their belts," DeZinno said.
DeZinno said CRA members haven't reported large-scale staff cutbacks, but he predicted that state restaurants would cut back on seasonal hires. Raising menu prices, he said, is not an option for many, as he believes Connecticut customers have already hit the point of price resistance.
"Really, what you have to do is not panic, and watch your inventory a little bit closer and try to be as efficient as possible," Spiro Koulouris, manager of the Half Door pub in Hartford's West End said. "The more efficient you are, the less you have to impose that situation on the customer."