www.montereycountynow.com september 12-18, 2024 MONTEREY COUNTY WEEKLY 19 Viewed from the outside, running a restaurant can have a romantic sheen. One imagines shopping for fresh local produce at farmers markets, the creativity of a kitchen and the air of being a centerpiece of a downtown block, drawing admiring crowds. “A lot of people are seduced by the restaurant industry,” Kevin Phillips says in agreement. “But they forget the numbers.” Phillips would have reason to see restaurants in such a positive light. The veteran restaurateur owns successful venues in Monterey and Pacific Grove. Whaling Station on Cannery Row is considered one of the area’s finest steakhouses. Abalonetti and Rockfish Harbor Grill are mainstays on Fisherman’s Wharf. Beach House Restaurant at Lovers Point quickly became a local favorite when it opened 12 years ago. He admits there is an allure to the artistic aspect of the industry. But Phillips emphasizes the more mundane equations that define food service. “It’s always been the same formula of cost and cash flow,” he explains. “Balancing that has always been a challenge—now more than ever.” Consumers likely need no reminder, but dining out has become a major financial commitment for many people. The check for a couple ordering burgers and fries can easily top $50, even if they settle for water to drink. Prime cuts of steak approach triple digits. Even fast food prices continue to outrun inflation. A chicken burrito at Chipotle that cost around $6.50 before the pandemic now sets you back almost $11. Although gross profits are up, rising costs are also putting a tremendous strain on chefs and restaurant owners. While the National Restaurant Association reported nine consecutive months of lower year-over-year wholesale food prices in 2022, turbulent markets returned—with something of a vengeance. More than 80 percent of restaurant operators nationwide reported bumping up menu prices in 2023, a scene reminiscent of the chaotic Covid years of 2020-21, when restaurants stepped up menu prices once, twice, perhaps three or four times to cover skyrocketing costs. And the situation continues. The federal government’s Producer Price Index for July 2024 saw average wholesale food prices jump by 4.3 percent. When expenses go up, restaurant owners must respond—although the options are not necessarily palatable. One is to reduce staffing to cut costs, but that comes with the potential negatives of alienating those who remain and less service. A second option is to accept another cut to profit margins, which for successful full-service restaurants hover around 3 to 5 percent. “Profit margin—that’s what gets cut,” explains Bill Lee, owner of a dozen area restaurants before opening Kona Steak & Seafood in Monterey, which he claims is his last venture. Lee has committed to a menu with value items. Phillips, meanwhile, has avoided menu price increases for the last yearand-a-half. “Net profit is a very skinny number these days,” Lee says. “Net profit is a very skinny number these days.” According to the federal Producer Price Index, the wholesale price to restaurants of fresh vegetables rose 4.2 percent in the past 12 months alone. As of the July 2024 report, the price of all foods is 30-percent higher than in February 2020. Longtime restaurateur Kevin Phillips at Beach House Restaurant in Pacific Grove. He also owns Monterey destinations Whaling Station Steakhouse, Abalonetti and Rockfish Harbor Grill. “We’ve held the line on pricing,” he observes, despite the soaring costs of food and other items necessary for a restaurant.
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