The first year of the pandemic was an existential challenge for many restaurants. The following year saw some operators make record profits, while many others continued to struggle. Now, many restaurateurs seem to think the light at the end of the tunnel isn’t getting closer, but moving farther away.
The cost of food supplies, equipment, labor and gas are on a volatile but unmistakably upward trajectory. Consumer spending is falling. And in the distance, the prospect of a recession looms.
San Antonio-based Bill Miller Bar-B-Q, which operates nearly 80 restaurants here and in other Texas cities, is feeling squeezed by both food and labor costs. President and CEO Jim Guy Egbert said the chain is eating the highest chicken prices it has ever seen, along with cost increases for staples like eggs and brisket, and labor costs are at a “historic high.” (The company raised its starting wages to $12 last year). While the chain hasn’t cut menu items like it has in the past, it has been forced to raise the prices on some items, Egbert said. “But they’ve come nowhere near to covering the increased costs we’re experiencing with labor and commodities.”
The average price of supplies for a restaurant operator increased nearly 18% in May over last year, according to figures from business intelligence group NPD Group.
Those hiked costs come at the same time that consumers are watching their wallets more closely. Personal discretionary income was down nearly 8% in the first quarter of 2022 over last year, the U.S. Department of Commerce recently reported.
Egbert said Bill Miller Bar-B-Q has seen visits to its stores decrease as a result. So now it is trying to change tactics. “We’re taking a deep dive into what value items we can promote, items that would help feed a family of four,” Egbert said.
Hiring has gotten easier recently, Egbert said. However the company continues to try new perks to attract workers. Last week Bill Miller announced it would begin paying at least some employees immediately at the end of their shift.
Pessimistic outlook
John Munoz, who owns Chef John’s Catering and teaches culinary classes at St. Philip’s College, said inflation has been a “killer.” Like Egbert, he pointed to chicken prices nearly doubling amid rising labor costs. His catering firm used to hire starting at $12 an hour. “Now I’ve got to pay $15 to $16 for a kid out of college.”
He said he’s been absorbing the costs for the most part, but he’s unsure what will happen if costs continue to climb as he expects them to. “How much are you really willing to pay for a burger and fries?”
New survey results from the National Restaurant Association shows that just 18% of restaurant operators expect economic conditions will improve in the next six months, the lowest number since the start of the pandemic. Meanwhile 43% think economic conditions will worsen — the highest level of pessimism since the Great Recession in 2008.
Some in the industry are taking dramatic actions. Mission Restaurant Supply, a San Antonio-based restaurant supply store with locations across the state, recently bought $50 million worth of equipment, such as refrigerators and knives, said Belkis Lane, an equipment specialist with the company. The move was a hedge against both rising prices and unpredictable delivery timelines.
San Antonio restaurants have received some support from the city and county government. LiftFund, a San Antonio-based microlender and counselor for small businesses, administered $54 million in grant funding from the city and county to local businesses, with nearly half of the amount going to restaurants, according to LiftFund President and CEO Janie Barrera.
Now, on a smaller scale, LiftFund is preparing to administer more small business grants powered by federal COVID-19 relief funds. Businesses, including restaurants, are eligible for grants of up to $35,000, with more for those affected by recent construction projects.
Johnny Hernandez, the chef behind the Grupo La Gloria restaurants, said restaurants can’t expect the same level of government support that many received in the early part of the pandemic. “The first two years of the pandemic were about adjusting, pivoting and getting short-term solutions to something we were all dealing with,” he said. “This year, having all of that behind us, every decision we make is a long-term decision that we have to base on long-term thinking.”
Not all restaurant operators are pessimistic, however. “Short term, we might see a hit in the traffic,” said Aaron Selinkoff, director of operations at Mad Dogs Restaurant Group. “But in 16 to 18 months, we’ll be fine.” The group includes River Walk attractions like Mad Dogs British Pub that receive a big boost from tourism and business travelers.
Dorian Mills, general manager of Bliss, a high-end American fare restaurant in Southtown, said 2020 was tough, but “time is a healer,” and last year was the restaurant’s best for sales in a decade. “Looking ahead, pandemic numbers are increasing, but people are taking more adventures,” he said.
Even with inflation hitting diners’ wallets and threats of a recession on the horizon, people in the restaurant industry feel they have already overcome the ultimate existential threat: COVID-19 lockdowns.
“If you survived the pandemic, you’ll survive a recession,” Lane said.
Correction: an earlier version of this story misstated Mission Restaurant Supply’s name and home base city.
