The Skyrocketing Costs Driving Cheeseburger Prices Up
And restaurant owners out. A $16 bacon cheeseburger may not be enough to save your neighborhood bar and grill. Independent restaurants are on financial life support, owners say, squeezed between escalating payroll costs and diners’ dwindling tolerance for ever-higher checks. Wages for waitstaff, table bussers and line cooks will grow more expensive for many eateries this year, with 22 states in January raising the minimum wage for hourly workers. The industry’s economic strains can be seen on the appetizer plate at Chef Zorba’s Restaurant in Denver. Owner Karen LuKanic recently swapped Greek giant beans for homemade stuffed grape leaves to save money and switched to cheaper shoestring potatoes from thick-cut fries. Denver has increased its minimum wage annually since 2020, most recently in January to $18.29 an hour, while Colorado has expanded paid sick leave and other employee benefit requirements. “We are just keeping our head above water,” said LuKanic, who estimated about half her restaurant’s sales now go to payroll and other employee-related costs. Chef Zorba’s charges $15.75 for a bacon cheeseburger, $5 more than in 2018. Even at those prices the 78-seat restaurant can’t turn a profit. LuKanic said she would consider closing if her Small Business Administration loan wasn’t guaranteed by her house. American restaurants emerged from the Covid-19 pandemic to find their traditional economics no longer work. After struggling to stay afloat through lockdowns, restaurant operators endured surging food costs and supply chain shortages. Restaurateurs raised menu prices. In January, prices for food eaten away from home were up 30% compared with the same month in 2019, Labor Department data showed. Restaurants’ food bills have stopped their pandemic-era surge. But payroll costs are still climbing.
Gen Z and the Push for Beer Innovation
Gen z’s newer preferences are driving change. Gen Z is continuing the decades-long trend of young adults becoming progressively less likely to use alcohol. Just under a third of adults aged 21-24 claim they never drink, according to a 2023 survey from CivicScience, a consumer insights and trends data company. “We’ve seen our youngest demographic trending away from alcohol,” says Matthew Stock, The Brass Tap manager of training and beer specialist. “That’s similar to what we saw with millennials. Thinking back to when I first got into the craft beer industry 15 years ago, it was all about these big, punch-you-in-the-teeth types of beers with lots of alcohol and ABVs of up to 8, 9, or 10 percent.” Millennials played a big role in swinging the pendulum back in the other direction, and most of The Brass Tap’s best-selling items hover around the 5 to 6 percent ABV range today, he adds. Gen Z is further compounding that trend and sparking a wave of innovation in the zero-proof beer category. The Brass Tap is capitalizing on the demand through partnerships with companies like Athletic Brewing that offer non-alcoholic versions of everything from IPAs and stouts to sours and radlers. “We’ve really embraced non-alcoholic beers thanks to the introduction of better and more flavorful offerings from breweries over the past five or six years,” Stock says. “All of the new locations that we open carry at least four non-alcoholic packages. That represents about 9 percent of our total package list.” CivicScience asked consumers about the future outlook for alcohol and found roughly a quarter of Gen Z respondents said they expect drinking will become less common in the next few years, the highest percentage among all generations. Two-thirds predicted non-alcoholic beer will continue growing in popularity, versus 46 percent of millennials and just 19 percent of Gen Xers. Despite the heightened interest in abstaining from alcohol altogether, younger consumers that do imbibe are exhibiting a range of dynamic behaviors. They’re drinking differently and with newer preferences compared to their older counterparts.
Bielat Santore & Company – Restaurant Industry Alert
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Dirty Sodas Appeal to Young Experimental Restaurant Consumers
Trend started in Utah, went viral, and is now going national. One of the hottest beverage trends at the moment originated in Utah and spread with the help of social media. “Dirty soda” is a sparkling beverage with something creamy added to it — often milk or half-and-half, but also non-dairy options such as coconut cream. In its current form, the menu platform gained traction with the help of Swig, a 63-unit beverage concept based in Lehi, Utah, and now larger chains are getting in on the action — particularly as interest in nonalcoholic beverages takes off. Swig founder Nicole Tanner said she originally conceived of Swig as a beverage and shaved-ice concept, and so she had a variety of syrups, creams, fruits, and sauces on hand to be added to the ice. When customers from an orthodontist’s office near Swig’s first location in St. George, Utah, came in and ordered a Dr. Pepper with coconut cream, she was able to comply, and it was those customers who coined the term. “We had people within the first month who called a coconut Dr. Pepper a ‘dirty Dr. Pepper,’” she said. She trademarked the term in 2014 to mean any flavor added to soda, tea, or water. Shortly thereafter, the shaved ice machines proved to be too much of a hassle, and she got rid of them, but the ingredient additions had long been incorporated into the other drinks. Now she says 95%-97% of all Swig orders are dirty because they have something added to them. Tanner is a big fan of dirty sodas herself, and in fact her go-to drink is on Swig’s menu under the name “The Founder.” It’s Diet Coke with sugar-free coconut syrup, lime juice, and coconut cream. “For the longest time I got a Diet Coke with coconut flavoring and fresh lime, and several years ago I added coconut cream, and I was like, ‘this is a game changer,’” she said. “It makes it smooth. It’s just delicious.” Swig now operates in Arizona, Oklahoma, and Texas, with additional franchised locations near Bentonville, Ark., and Boise, Idaho. Tanner said that although dirty sodas might have originated in Utah, they’re gaining in popularity everywhere.
Essential Tactics to Control Restaurant Labor Costs
Labor cost is not your biggest expense. Do you often find yourself feeling financially drained as your team’s overtime hours accumulate on the proverbial time clock? Are you eager to take a bite out of these costs and boost your restaurant’s profitability? If you answered yes to these questions, you’re in the right place. Here are seven effective and essential tactics to control restaurant labor costs and start making the money you deserve. Before diving into the tactics, let’s challenge a common belief. While many consider labor costs the biggest expense in a restaurant, it might be surprising to learn that, in reality, an empty chair takes the top spot. The logic is simple — when your restaurant is empty, you’re losing money on rent, utilities, inventory and more. However, once you have customers, labor cost becomes a significant factor in your overall expenses. Seven essential tactics to control restaurant labor cost.
- Understand FTE (Full-Time Equivalence): Ensure you have the right number of team members to cover your schedule. Aim for two FTEs more than you think you need to account for time off, vacations and turnover.
- Train managers in scheduling practices: Implement and train managers in scheduling practices that eliminate common mistakes, reducing inefficiencies and unnecessary costs.
- Add cross training to your systems: Incorporate cross training into your system to make your team more versatile. Servers can cross train as hosts, bussers as dishwashers and barbacks as bartenders, creating a well-rounded staff.
Restaurant Operators Shrink the Store
Not the experience. More and more restaurant operators seem to agree: Smaller is better when it comes to new unit prototypes. As the trend toward off-premises dining settles into a “new normal” that is still well above pre-pandemic levels, the need for seating — and parking — is decreasing accordingly. This presents both opportunities and challenges for operators. Although smaller formats cost less to build and operate, operators still need to generate enough sales to ensure an adequate return on their reduced investment. That calculation must account for the lower margins on third-party delivery orders, as well as the loss of customers seeking in-store dining experience, according to operators. At drive-thru hot dog specialist Wienerschnitzel, for example, the company added indoor seating to its prototype Heritage format as an option after learning that its customers in the Texas market like to have someplace to beat the heat. “We found out by trial and error that sometimes you need a little bit of a dining room,” said Rusty Bills, chief operating officer at Wienerschnitzel, which tallies about 78% of its business via takeout, including drive thru. The company has long focused on operating efficiencies in its restaurants, which are known for their compact, A-frame design. Its Heritage prototype preserves elements of that design in a more cost-effective, 820-square-foot format, and its newer Heritage Plus design has added a dining room with space for about 16–20 seats, bumping the square footage up to about 1,200 square feet, which is still compact compared with most quick-service concepts.
How a Family-Owned Restaurant
In Brooklyn. Mable’s Smokehouse is a Southern comfort restaurant and catering service that wanted to bring down-to-earth, family flavors to Brooklyn. Meghan Love and her husband, Jeff Love, have successfully done just that for 13 years. The restaurant features Jeff Love’s grandmother Mable’s recipes. The Loves—who have worked in the restaurant and hospitality industry for most of their lives—draw on their experiences to make their family restaurant and catering business a success. “When we opened our restaurant, we were young and green, and we didn’t have a lot of money. Although I had worked in the restaurant industry for 20 years,” says Meghan Love. “I’ve been waiting tables since I was fifteen, so I knew how to run the front of house, but it’s a whole different story when you do it yourself. My husband grew up in restaurants. His mom had a catering business and also had a couple of restaurants, so he knew how to set up the back of the house.” Remaining open and financially healthy as a small business and restaurant can be challenging. Stability is especially hard as consumer trends seem to be changing faster than ever and inflation is on the rise. How small businesses handle the turbulent market may differ. However, Mable’s Smokehouse has found success as it relies on the Loves’ depth of experience, rigorous training protocols, and diversifying both the payments it can receive and the avenues through which it offers food. Meghan Love recalled how she came to New York as an aspiring actress and her husband was an artist before they opened their first restaurant. “We decided to open this down-to-earth, restaurant in the middle of Brooklyn,” Love recalls. “There were a few barbecue restaurants but there wasn’t anything that felt like home. So, we said there’s a hole in the market here, let’s just do what we truly know and understand—here we are, 13 years later. It’s been a wild ride.”
Did You Know?
The recipe for mitigating restaurant risk. Things began to change for the restaurant industry in 2023 as the script flipped from cutbacks to a growth mindset. Data from the National Restaurant Association’s 2023 State of the Restaurant Industry report revealed that nearly three in four operators were focused on sustaining growth. While the change in mindset is good news for the industry, expansion in this sector is hampered by staff turnover with a majority (62 percent) of restaurant owners reporting being understaffed. As the focus for restaurants continues to center on growing and staffing up, safety training can sometimes get lost in the mix or ratcheted down to cover only topics related to compliance with regulations.
Employee Tip
How restaurants can protect their employees’ mental well-being. The restaurant business continues to normalize since the Covid-19 pandemic devastated the industry four years ago. But as the bumpiness of the supply chain, staffing levels, permitting delays, and food costs start to smooth out, one major challenge remains: Many employees are not OK. According to the American Psychological Association, 50% of adults ages 18–34 reported a mental illness in 2023, versus 31% in 2019. That number is likely compounded among restaurant workers, who are most at risk for substance abuse disorders and heavy alcohol use, according to the Substance Abuse and Mental Health Services Association. Overall, food service is considered one of the worst industries for mental health, according to a 2017 report from Mental Health America.