20 MONTEREY COUNTY WEEKLY september 12-18, 2024 www.montereycountynow.com The third option for restaurateurs burdened by rising costs is more familiar to diners. According to National Restaurant Association data, menu prices have increased by 4.1 percent across the board over the past 12 months. “When we have to increase prices, business slows,” observes Maria Maravilla of La Casa del Sazón, with locations in Salinas and Monterey. “But [people] come back, because everyone is raising prices.” That has been the case. But there are now signs that many Americans are growing weary of menu price gentrification. As Phillips warns, dining out is a luxury, not a necessity: “One thing that has to be kept in mind is that nobody has to go to a restaurant.” While restaurant sales grew by a modest 0.4 percent over the second quarter of 2024, the National Restaurant Association reports that real sales have been flat. Adjusted for inflation, the figure dropped into the negative range. People are beginning to stay home. “The reports look an awful lot like the first quarter, and I stress that word ‘awful,’” Nation’s Restaurant News Executive Editor Alicia Kelso told the video news service NRN In the Mix. Across the quick-service and casual dining sectors, same-store sales dropped in the second quarter. It is evident, Kelso added, that lower-income families can no longer afford a meal out. “High menu prices have taken their toll,” she added. What goes into menu pricing? In the milieu of a restaurant beset by inflation, plates more than ever become checks written against incoming bills. When projecting his budget before opening Kona, Lee based expected PG&E expenses on the average bill at Sur, his previous restaurant, adjusted for additional square footage. He came to a figure of $10,200 a month. But when Kona opened, the bill came to $10,700 a month. “It’s not the big numbers,” Lee says. “That’s still $500 more a month. It’s the little numbers that can be a big part of cutting profits.” Now, 19 months after opening, the monthly PG&E bill at Kona has climbed to $13,500. Rent, water and electric absorb $40,000 each month, before taking other costs into account. “The first 12 or 13 lunch customers cover just the increase in PG&E costs,” Lee explains. “The next group pays half the rent.” Ashley Wolff acquired the former Carmel Burger Bar in Carmel Plaza and started transforming the menu with Korean staples earlier this year, renaming the space JeJu Kitchen. She ticks off the list of expenses, including taxes and fees, as well as replacing broken glassware. There’s insurance to cover. The point-of-sale system takes a percentage of each ticket. Rent in pricey Carmel can run up to $20,000 a month. “A couple comes in and orders short ribs and jajangmyeon,” she offers as one potential example. “Those two items have to cover the cost of ingredients, plus a portion of everything else listed.” The ribs are currently listed at $38. The plate cost includes marinade, onions and rice. The traditional noodle dish starts at $20—relatively inexpensive due to its recipe of vegetables and noodles, but adding protein can push the amount over $30. “Everything else” includes not just what’s on the menu but also rent, utilities, staffing, silverware, linens and more, such as soap for the dishwasher. “None of that is free,” Wolff says. The formula mentioned by Phillips—the weight of costs and income to hopefully generate profit—is as close to choreography as one can come to when wielding numbers. The generally accepted target is 60, the sum of food costs and labor costs as a percentage of the overall pie. If all other expenses, including rent and utilities, do not exceed 30 percent, the restaurant generates a 10-percent net profit margin. While all retail operations must absorb costs, restaurants are subject to many variables. Not the least of these is the public’s expectations. Diners may be willing to depart with $30 for fish and chips. Push it to $40, however, and they begin to balk. A 10-ounce cut of prime filet mignon can sell at $80, but $90 is pushing it. Within this are different margins. That cut of prime steak might push food cost for that menu item to 50 percent or more. So the goal is to take the items that make up a menu—soup, salads, entrees and so on—amount to no more than 30-percent food cost, without sacrificing quality or driving customers away. And it can get complicated. Lee explains it in a scenario where a rack of lamb cost the restaurant $18. “OK, I’ll run a 40-percent food cost, so if the total plate costs $20, price it at $50,” he says. An appetizer with $2 of cost on the plate, that can be set at $10—a 20-percent food cost. “You have to average it out,” Lee continues. “How that mix works out is important. That’s the big question.” For a steakhouse like Whaling Station to remain within food cost bounds, Phillips spreads the menu to include items with better markup value, such as pasta dishes. None of this is new for long-time owners and chefs. If guests order salads or certain plates where portion size works in the restaurant’s favor, along with wine by the glass (another haven for markups), the percentages begin to settle into an acceptable range. But food cost has been particularly volatile of late. Within that Producer Price Index 4.3-percent increase figure are some astounding numbers. The wholesale price of beef is 5.2 percent above 2023 levels, and expected to rise further. Coffee is up 9.1 percent, cheese 9.8 percent, butter 26.8 percent and eggs a whopping 90.7 percent above the price from July 2023. Phillips points out that the PPI figure can be deceptive, as well. Wholesale prices for food items remain above pre-Covid levels. And while a Executive Chef Pete Martinez of Beach House Restaurant in Pacific Grove at work. Restaurant owner Kevin Phillips credits the chef with both keeping food costs in check and preventing costly staff turnover. “He’s not only a great chef, he has a staff that respects him,” Phillips says. “The first 12 or 13 lunch customers cover just the increase in PG&E costs. The next group pays half the rent.”
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