Cost of Eating leaves us hungry

Inflation in the restaurant industry …What’s really going on here?

Inflation is a hot topic across the nation, especially with the looming U.S. presidential election, and it seems that the food industry has been hit especially hard, piggy-backed on the near-dissolution of the restaurant industry during the COVID-19 pandemic.

According to the USDA Economic Research Service the “average annual food-at-home prices were 5 percent higher in 2023 than in 2022. For context, the 20-year historical level of retail food inflation is 2.5 percent per year.

Fats and oils costs rose by 9 percent in 2023, which in turn rolls over into the restaurant industry. When a case of oil raises from average of $19 for fryer oil up to $23 or more, the cost of cooking your favorite French fries dramatically changes. Factor in the rising cost of rent for establishments, gas, electric, licensing fees, etc., and the overall cost of doing business has increased across the board, not just the food portion. Cost of goods rose 20% in the second quarter of 2024 for some Oregon restaurants. 

So, how do restaurants price their meals that dictate their profit margins? Getting customers in the seats is the most important part of the industry; what happens when they’re losing customers left and right due to inflation? Your favorite burger joint may have charged $15 in 2019 for a gourmet burger, and those burgers are now pushing $19 in today’s market. Just how do restaurant owners and chefs land on the price they’re selling their meals at?

The basic rule of thumb for the restaurant industry of yesteryear was to take the cost of food and multiply that by four – giving the establishment a 75% mark-up, which at one point would have covered the cost of employees, cost of goods and overhead such as rent and utilities, all while factoring in around a 15-20% profit margin.

In today’s world, restaurant profit margins, where owners are still pricing their menu items using the same methodology, are hovering right around 3-5% and it usually takes five years to get to the point of even making a profit. 

Most of you might be thinking, “Well, the system for pricing menus is broken!” However, if we really wanted to get our profit margins to the area where small restaurant owners were actually making a livable wage for themselves, as well as their staff, the cost of going out would increase by at least 10%, and more like 20%, to actually make it worth it.

Where does an owner’s livelihood factor into the system? Depending on who you ask, restaurants are more of a passion project vs. a cash cow for operators. The sizable profit margins are not there anymore, unless you’re a major corporation with the means to cash-roll your own farm for production. 

A hot topic in the industry is the cost of a “Fried Chicken Sandwich.” Most mom-and-pop shops are charging between $17 and $19 for their fried chicken sandwich with a side of fries. That’s while McDonald’s is charging around $11 for a Deluxe McCrispy Meal, fries and drink included.

Typical of any industry, the more of a product that you order, the cheaper the price per-unit is. According to CNBC, individual McDonald’s restaurants sell an average of 262 fried chicken sandwiches per day – while your favorite mom-and-pop shop sells maybe around 200 per month. Now, factor in that McDonald’s owns their own chicken farms, giving them an advantage on the chicken market. McDonald’s price per-unit is far lower than the price any small, family-owned business would be able to obtain. Also realize that major corporations get tax breaks that your locally owned businesses are not getting. Meantime, unbeknownst to many customers this a massive decline in chicken production currently in the U.S., due to the 2024 H5 Bird Flu that wiped out over 1.8 MILLION chickens so far this year. When you stop in at your favorite locally owned sports bar for some hot wings, they might be a little pricier than going to Wingstop, which did $155.7 million of business in the second quarter of 2024 and is in the process of building out its own chicken farm for production, so as to not be affected by the global market. 

Inflation is dramatically changing the United States. Major corporations are raking in record-breaking profits and promoting billionaire CEOs. During this inflation period, please do remember your small locally owned businesses. When you dine out locally you are helping a family buy their kids’ Little League gear and putting food on their own dining table, instead of helping a billionaire CEO purchase their fifth vacation home.

Remember that small businesses are not raising their prices because they WANT to… they’re raising their prices because that’s the only way to continue serving their communities. Owners and chefs must roll with the punches. They’re not setting the price of the cost of goods, but have to price things according to the market in order to maintain stability within their business and keep the lights on.

As we head into the holiday season, try to shop local, buy gift certificates from your favorite locally owned restaurant, hit up the farmers market and support local, organic growers, support local artists. Do your best to keep your money local and help support your community’s small business owners.