When San Francisco chef Nate Appleman opens his third restaurant in November, the Italian eatery will include space for butchering whole animals.
That’s partly because Appleman, co-owner of the regional Italian restaurants A16 and SPQR, is known for menu specialties derived from his use of a whole pig and three or four whole lambs in a typical week. Soon, he plans to start buying whole cows.
As food prices escalate sharply and persistently, Appleman has realized huge cost savings from cutting his own meat. A precut 12- to 14-ounce pork chop might cost him $8, but the same size chop costs roughly $2 when he does his own butchering.
At a time when wholesale food prices have seen their largest jump in three decades, restaurant operators around the country are being forced to get creative as they struggle to maintain profitability.
Also, with recession-wary consumers increasingly stinting on away-from-home meal spending, chefs are being called on to devise or revamp recipes that somehow can hype lower-cost ingredients yet maintain sales volumes, profit margins and food appeal.
The National Restaurant Association estimates that wholesale food prices increased 7.6 percent last year. Add to that the increasing cost of labor, gas surcharges for delivered goods and the impact of the weakened U.S. dollar overseas, and restaurant operators say they are feeling pressure like never before.
“I have never seen so many negative forces being presented to the restaurant industry,” says Craig Hofman, president of the Signal Hill, Calif.-based Lucille’s Smokehouse Bar-B-Que chain.
Restaurants by nature tend to be lean operations, but many operators say current challenges have forced them to take a hard look at every aspect of their businesses.
“All these costs are affecting everything we do,” says Caroline Styne, co-owner of the Los Angeles fine-dining restaurant Lucques and the more casual wine bar A.O.C.
Reluctant to raise menu prices, Styne vigilantly seeks out ways to save pennies, from turning off the restaurants’ air conditioners earlier to switching to lower-energy lightbulbs.
Recently, for example, she invested in new tables for the patio at Lucques that did not require the use of linens. Within two months, the expense was covered by savings from reduced laundering costs.
Styne also has shifted the wine menu mix to offer more affordable California wines ranging from $30 to $60. Because of the weakened U.S. dollar, costs for European wines have shot up and she doesn’t want to charge higher mark ups.
“Who wants to raise their prices on the verge of a recession?” she asks. “I don’t want people leaving my restaurant and saying, ‘Wow, I can’t believe I spent that much on a meal.’ I want people to say, ‘That was worth every penny.’”
At Irving, Texas-based CEC Entertainment Inc., first-quarter earnings were positive in part because of its switch to a lower-cost “reformulated” cheese product for the Chuck E. Cheese’s chain’s 490 restaurants.
Richard Frank, CEC’s chief executive, says cheese prices were up 50 cents per pound during the quarter, prompting the switch and a corresponding 1.1-percent menu-price increase. The “reformulated” cheese is a high-moisture mozzarella blend that Frank says spreads better and is generally “cheesier,” allowing operators to use less of it and save.
Across the country, consumers also are keeping a tighter grip on their wallets. Instead of price increases, many operators are looking for ways to send new messages of value to attract guests who want more for their already stretched dollars.
About a year ago, the French bistro Salut in Edina, Minn., for example, began offering La Deal, a prix-fixe menu that is $9.95 at lunch and $14.95 at dinner. One of seven concepts operated by Edina-based Parasole Restaurant Holdings, Salut’s guest count is up 4.3 percent over the previous year, says Michael Larson, vice president of operations.
Earlier this year, Parasole launched a Sunday Suppers initiative, filling dining rooms on what used to be a slow night.
At Salut, where per-guest dinner tabs average $14.95, diners on Sunday can order a platter of sliders and fries for $8.95 per person, and kids eat free. At the sister concept Pittsburgh Blue Steakhouse in Maple Grove, Minn., where entrée prices range from $31 to $50, the Sunday Supper features pot roast for $8.95, though it is often paired with a $20 bottle of wine.
Because diners inspired by such value-oriented food pricing tend to add on cocktails, check averages for the Sunday Suppers have been roughly the same as other nights, and guests walk out feeling as though they have gotten a great deal, says Larson.
Perhaps more important, they walk in to the restaurant in the first place, which is the frequency goal of most meal deals, no matter the price strata. In the quick-service sector, bundling is also a common theme.
Urging cash-strapped diners to “eat like a man,” Irvine, Calif.-based Taco Bell recently launched a limited-time Big Bell Box meal that includes a Bacon Club Chalupa, a Beef Crunchy Taco, a Bean Burrito, Cinnamon Twists and a large drink, all for $4.99.
In June, the Wienerschnitzel hot dog chain plans to bring back a popular limited-time value offer of five chili dogs for $5. The Irvine-based chain also is adding a 99-cent value menu to help bring in new traffic.
Though many quick-service operators see such deep discounting as a slippery slope, Dennis Tase, president and chief operating officer of Wienerschnitzel parent Galardi Group, counters: “It was a slippery slope many years ago, but today it’s a slope you have to be on.”
Wienerschnitzel’s food costs have increased by about 2 percent in recent months, Tase says.
The company raised prices about 1 percent this year, following a roughly 2-percent increase last year to deal with higher costs. But because Wienerschnitzel is positioned as a value-focused brand, it has looked for ways to help franchisees offset inflating costs. Counter crews are pushing onion rings, for example, which are a higher-margin alternative to French fries.
New Wienerschnitzel products take advantage of lower-cost and existing ingredients, such as a chili cheese dog with nacho cheese sauce or a chili dog wrapped in a tortilla and then fried. Both feature the brand’s signature chili.
Across the country, operations executives are paying particular attention to what ends up in the trash at their restaurants—a key clue in determining what might be cut from a plate.
At the 11 Lucille’s Smokehouse branches, which are known for generous portions, sandwiches are now only served with one side item instead of two.
“I never thought we’d do it, but we were offering too much food,” Hofman says. “I thought there would be a huge outcry, but there wasn’t.”
The chain also is developing smaller-portion and lower-priced lunch items.
At the 16 high-end Oceanaire Seafood Room restaurants nationwide, prices have held steady, but menus include more affordable options for business travelers on tightened expense accounts, says chief executive Terry Ryan.
The Oceanaire branches recently added a 6-ounce beef filet as a lower-cost alternative to their 10-to-14-ounce steaks, for example, and chefs always try to keep an entrée in the $20 range on the menu.
Ryan has looked to cost-cutting measures such as reducing the number of produce delivery days from five per week to three. Seafood, however, is still delivered daily.
Also, rather than moving to lower-cost ingredients, Oceanaire is striving to give guests a better sense of value, he says.
Previously, only guests who ordered from the chef-driven side of the menu were given an amuse-bouche to start the meal. Now all guests are given the tiny starters to add value.
“If you go out and spend $60 for dinner and you don’t feel you got your money’s worth, now that’s a real problem,” Ryan says.
Seattle-based Starbucks Coffee also is feeling the pain of reduced consumer spending, most recently reflected in a 28-percent drop in profit and a “mid-single-digit” decline in same-store sales at U.S. units for the company’s most recent quarter. Both metrics also reflect slowing guest traffic, particularly in Southern California and South Florida, where the nation’s housing crisis is seen as having hit the hardest.
Howard Schultz, Starbucks’ chairman and chief executive, says research has shown that customers are not switching to a coffee competitor, but rather are just not going out for their favorite caffe latte as often.
“Starbucks has always been an affordable luxury, but, at this time, it isn’t for some people,” Schultz says.
Declaring 2008 a “year of transformation,” Schultz has launched sweeping changes, from a sharp reduction in domestic store expansion and the retraining of baristas to equipment upgrades and the planned launch in California this summer of a new Italian-style frozen beverage that Schultz promises will be less expensive than the brand’s signature Frappuccino.
“We have to give customers a new reason to come to Starbucks,” Schultz says. “We’re getting back on the offensive, and we’re going to innovate like hell.”
At high-end restaurants, many operators see service as a key to preserving their customer base.
“When we get into these situations, people start taking shortcuts,” says Michael Dellar, co-founder of Lark Creek Restaurant Group, based in San Francisco. “I think this is a time when we have to focus on what we do best: great and caring service.”
The Lark Creek group operates 11 restaurants, including the One Market and Bradley Ogden restaurants, and four locations of the more casual fresh-seafood concept Yankee Pier. Menu prices have gone up about 5 percent at the group’s San Francisco restaurants to deal with rising labor and health care costs there.
Lark Creek has worked on reducing labor costs by staggering shifts to avoid over-staffing during slow times, or asking managers to pick up hosting and other duties.
“Sometimes it’s a matter of dusting off polices that haven’t been enforced,” Dellar says.
Sales, however, have been strong in San Francisco because tourism is up, he notes.
Also, chefs at each of the Lark Creek group’s restaurants buy “out the back door,” basing their menus on what is locally available and in season, which helps keep food costs down.
At Yankee Pier, the company’s newer growth vehicle, a new section of the menu features pasta dishes with fish for higher-margin plates. Seafood trim might go into a seafood Bolognese sauce, and a clam sauce with fresh English peas uses half as much of the shellfish as is used in the bowl of steamed clams.
Still, Dellar refuses to switch to lower-quality ingredients.
“You have to be true to what brought you to the party,” he says. “I love it when other people are cutting their quality. That’s the best thing that could happen to us.”
Officials of Pizza Hut see pasta as a solution. The chain’s 6,200 U.S. locations recently launched pasta delivery, which foodservice veterans saw as a higher-margin alternative to pizza, given the skyrocketing costs of cheese and baking flour.
In some cities, high flour costs have prompted operators to stop putting out baskets of bread except upon request. Some are charging for bread that, until recently, was complimentary.
However, Appleman of A16 and SPQR says his two restaurants still serve bread for free despite that amenity’s cost of nearly $700 each week, an increase of about 50 cents per loaf in the past year.
“We’ve tried not offering it until they ask,” he says. “We’ve tried asking if they want it. But we’ve found it’s just easier and more cost effective to just bring it for free.”
Appleman, however, is searching for a good olive oil produced in California to replace the much more expensive imported oil he uses now.
“I’m having trouble finding someone who can offer the quantity I need,” he says.
Many restaurateurs say the impact of the “perfect storm” economy hasn’t hit them yet, but they see it coming.
Rick Moonen, chef-owner of RM Seafood in Las Vegas, says his sales are up 29 percent over last year, but he’s keeping a close eye on his numbers.
“We have held our prices steady, but we’ve realized we might have to increase them,” he says. “When white truffles come into season, what’s going to happen? I don’t know. Will there even be the demand for them?”
