22 MONTEREY COUNTY WEEKLY september 12-18, 2024 www.montereycountynow.com 4.3-percent hike is easier on the budget than the 8-percent or higher spikes experienced during the pandemic, the effect is cumulative. “It’s 4 percent on top of 8 percent,” Phillips explains. “That’s what people don’t understand.” He credits his chefs, like Pete Martinez at Beach House Restaurant, for reining in costs without sacrificing quality. There are some tricks to it, such as recognizing when a sauce for one dish can be used as the base of a soup, as well. But the most effective way is time-honored. “Be smart with your shopping, be smart with your stocking,” Phillips says. “You have to control waste.” Manage to bring food cost within range, and restaurateurs have a chance at keeping labor cost in check. In California, the state-mandated $16-an-hour minimum wage for tipped workers went into effect in January. That figure was anticipated, staggered up over the past several years from $10 in 2017. The state also layered on a $20-an-hour minimum wage for fast food workers (with certain requirements) and paid sick leave. Phillips illustrates the impact of this with another scenario. If a restaurant operated on 40,000 minimum wage hours per year, he points out, even a $1 an hour increase pushes labor cost well above the desired percentage. That more people are beginning to shun meals outside the home may have to do with the quirks of staffing demand. In general, restaurants require more people—cooks, bussers, waiters, hosts—to operate successfully than do convenience or grocery stores. As a result, while menu prices increased by over 4 percent, grocery prices were up by just 0.3 percent in July after holding flat over previous months of 2024. “That’s what labor cost looks like,” Phillips says. “Overhead has always been an issue.” Yet higher wages are not insurmountable. They just change the equation. As labor cost creeps toward 40 percent, Lee notes, “something’s got to give.” Just how quickly all of this mathematical choreography can come crashing to the floor can be seen in a study of profit margins of Darden Restaurants, a group that includes Olive Garden, Longhorn Steakhouse, Ruth’s Chris Steak House and Cheddar’s Scratch Kitchen among its holdings—and, through national leverage, keeps food costs in check. Since 2010, the group’s net profit margin held steady, idling between 5 and 9 percent. During the pandemic, however, that number plummeted to -3.5 percent. A survey by the industry consulting firm Restaurant365 found that 61 percent of restaurant operators across the U.S. expect to raise prices yet again in 2024. But many local restaurateurs are holding firm, for now. “Out of 100 guests, there’s another two, three, four you lose,” Lee says of a menu price increase under current circumstances. “It’s a tough dilemma.” Lee is quick to chuckle, despite the tenuous situation (“another increase in costs, now profit margin becomes a negative number,” he observes). Phillips describes circumstances with an air of calm. They have survived similar moments. Insurance rates spiraled upward in the uncertainty after 9/11. Many compare current events to the financial crisis of 2008. After the upheaval of the pandemic, staffing issues have begun to ease. The industry has escaped the recent oddities, too—the Sriracha shortage, the chicken wing shortage, the worker shortages that slowed packaging of meats. “I think it has settled down a little bit,” Wolff says. “We’ve had worse.” According to U.S. Census Bureau numbers, Americans spent $94.7 billion at bars, restaurants and other food establishments in July. Meanwhile core inflation is down. Setting menu prices has always been a balancing act, a computation of fixed costs such as rent and variable costs, like food and labor. Semi-variable costs are perhaps a new wrinkle, as the price of everything from water to to-go cartons, insurance and even toilet paper edge higher. As Lee pointed out, increments of $500 a month are cause for concern for restaurateurs. “The fixed costs are squeezing us,” Phillips says. “Sometimes there’s a tipping point.” In 2022, a Weekly story questioned whether the mid-range restaurant was doomed to extinction. But restaurants like Kona, Beach House, Whaling Station and others maintain bar menus, value items and perks such as locals’ pricing. On the other hand, the National Restaurant Association reports that “until wholesale prices start trending lower across a broad range of commodities, food costs will continue to be a headwind for many restaurants.” While dining out is about an experience, the future of the experience is largely about the numbers. Fewer people are choosing to dine out—68 percent plan to cut back, according to a survey from the marketing firm Vericast. So 2024 may indeed be a tipping point. It may also be just another tumultuous year for an industry that tends to weather them. For now, Wolff chooses to be grateful for those who continue to visit the restaurant. “They only have X amount to spend and they choose to spend it here,” she says. “That’s flattering.” “I think it has settled down a little bit. We’ve had worse.” Server Corinne Shohlé and bus staff prepare ingredients at Passionfish (above). A finished dish (below) is priced with food cost, labor cost and other expenses in mind.
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