Restaurant worries
Restaurateurs pessimistic on future amid inflation, staffing woes.
Almost half of Connecticut restaurateurs — 43% — say business conditions are worse now than they were three months ago, according to findings of a poll released last month by the Connecticut Restaurant Association. This comes at a time when despair about the industry’s future is the highest nationwide since 2008, the peak year of the Great Recession, according to a separate report released this summer by the National Restaurant Association. That report stated that the same percentage — 43% — of restaurateurs nationwide believe conditions will worsen by the new year.
“While operators’ growing economic pessimism does not guarantee that a recession is imminent, it has risen to a level that requires close monitoring,” the NRA report states.
In the CRA poll, comparing 2022 expenses with 2019, 84% of Connecticut restaurateurs say food and beverage costs are higher, 69% say occupancy costs are higher, 86% say utility costs are higher and 94% say other operating costs are higher.
Scott Dolch, president and CEO of CRA, said restaurateurs’ angst and continuing
“Restaurant owners are doing everything they can. I hear them tell me at the end of the week or the month I’m barely breaking even. They don’t see light at the end of this tunnel. They don’t think inflation is going down. They are worried about the fall and winter when they lose outdoor dining.”
— Scott Dolch, president and CEO of the Connecticut Restaurant Association
struggles may seem counterintuitive at a time when the pandemic is perceived to be on the wane and more people feel comfortable eating in restaurants.
“What we’re seeing right now is a positive thing, people coming out supporting restaurants. But the negative side is the cost to run a business in our industry,” Dolch said. “In the last 12 months, food costs have gone up 16% and menu costs have only gone up 7.6%. And that doesn’t even mention labor and utilities.”
‘What everybody already knew’
Tim Adams, co-owner of J. Timothy’s Taverne in Plainville, said the CRA poll “is saying what everybody already knew.”
“We’re seeing customers who want to come out, but the contradiction is the inflation we’re seeing,” he said. “Our biggest problems are having enough people to work to put out the meals the customers want. But then there’s the overall expense of everything — utilities, labor, operations, paper bags, you name it — it all costs more.”
Dolch added that restaurateurs risk losing customer loyalty if they raise menu prices at the same level as food costs are rising.
“It would be sticker shock,” he said. “They would lose a portion of their guests, maybe that family of four that comes out twice a month will cut down to once a month. Also, they’re competing with neighboring restaurants and what they’re charging.”
Adams said he put off raising menu prices for a long time. As a result, “we went quite a few months with negative cash flow,” he said.
He said raising prices was “probably the hardest thing I ever did ... but at least we are in positive cash flow now, although we’re not running to the bank by any means.”
In good times, the average profit margin in restaurants nationwide ranges from 4% to 6%. Today, cost increases whittle that margin to near 0%. The poll reported that 85% of Connecticut restaurateurs say their business is less profitable than in 2019.
“Restaurant owners are doing everything they can. I hear them tell me at the end of the week or the month I’m barely breaking even. They don’t see light at the end of this tunnel. They don’t think inflation is going down. They are worried about the fall and winter when they lose outdoor dining,” Dolch said.
Raising prices
Chris Prosperi, owner of Metro Bis in Simsbury, is not pessimistic for his future. Metro Bis converted its menu to prix fixe only. Two-course lunches are $30 and three-course dinners are $60, not including tax and tip, and $10 extra if you want a pre-meal bread basket. He is thriving.
“That saved us. I haven’t changed back or think I ever will change back,” he said. “It’s easier than changing the prices on the menu all the time.”
Prosperi believes restaurateurs would be less pessimistic about the future if they did what they instinctively don’t want to do: raise menu prices, and not by just a little, to keep their heads above water in a time of rapidly escalating costs.
“When was the last time [restaurateurs] raised our prices to go with where prices are today?” he said. “They have to go up a lot more, otherwise you’ll see a lot of [restaurants] go out. That would be a shame because there’s no reason for it.”
Restaurants don’t usually want to raise prices, he said, because of customer pushback. But if they don’t, he said, they will sink even further in profit margin. They can justify the cost increase with customers by remembering what restaurants are for, he said.
“Restaurants are not as much about food as they are about gathering. Why do you go out to eat? Just because you don’t want to be home? Or is it because you want to see friends and family and share that time over a meal?” he said. “I think we need that now more than ever . ... I see it when I spend time in the dining room. People are happy to be back together.”
Loans come due
The CRA poll found that more expenses will be added soon. The National Restaurant Association reports that 59% of business owners took on forgivable Paycheck Protection Program loans, 48% took out an Economic Injury Disaster Loan (EIDL) from the U.S. Small Business Administration or a lending partner and 31% took on a private-sector loan.
The payment deferment period for EIDLs will end soon. Dolch said national figures are bleak, even with a favorable interest rate of just below 4%.
“Of the operators who have not begun loan repayment, only 23% say they will be able to make principal and interest payments. Another 46% expect to be able to pay the principal, but not 30 months of accrued interest,” he said.
Forgiveness of EIDL loans, he said, does not look probable.
“In our industry alone there was $370 billion in EIDL loans. They’re not going to forgive those loans,” he said. “The question we can ask, though, is do they need that interest? We don’t want to see these loans get defaulted.”
The ongoing staffing crisis is compounding restaurateur stress, too. The CRA poll found that 59% of Connecticut restaurant owners don’t have enough employees to support customer demand, 75% say they will likely hire more employees within six months, but 80% say their restaurant has openings that are hard to fill.
Adams said he is still mystified by the inability of his popular restaurant to hire enough staff.
“I thought I was being optimistic last year at this time when I predicted that post-Super Bowl people would go off unemployment and we would see a break. It didn’t happen,” he said, referring to one of the busiest days of the year at the restaurant famous for its chicken wings.
“I still haven’t seen it happen yet. I’m not as optimistic as I’d like to be. I truly don’t understand what happened, where the people are. I have yet to talk to someone who can give me that answer,” he said.
Billy Grant, owner of Bricco in West Hartford and Bricco Trattoria in Glastonbury, said despite the high cost of “everything” and supply-chain issues that add weeks to replacement of faulty equipment, his biggest concern is the struggle to recruit new workers.
“The cost of labor has gone up because I’m using so much overtime. I have no choice. I don’t have enough cooks. And I’m a hands-on guy. I have a massive burn on my arm because I’m still cooking. And for at least two hours every Friday I am washing dishes,” he said. “I did not picture that after 27 years, I’d still be working as hard as I do.”
Nonetheless, he said, he feels “blessed.”
“I have restaurants in two good locations,” Grant said.
Colleges
The industry gloom that came with the pandemic is seeping into college restaurant-training programs, too.
Sacred Heart University in Fairfield stopped accepting new students into its hospitality and tourism management program last year. SHU will close the program after all current students graduate, program coordinator Kirsten Tripoldi said.
“The pandemic killed us, too,” she said.
Tripoldi said parents’ concerns for their children’s professional futures are a large factor in the “sunsetting” of the program.
“Parents want their kids, after getting an expensive degree, to have a career path and some money to pay off student loans,” Tripoldi said.
Tripoldi, who is on the board of the International Council of Hotel, Restaurant and Institutional Educators, acknowledged that SHU’s program’s closing also was due to marketing missteps. But she added that many college hospitality programs are at historically low numbers.
“Quite a few are at 40% of enrollment compared to four or five years ago,” she said.
Jan Jones, program coordinator for hospitality and tourism management at University of New Haven, said colleges and the restaurant industry have to “get innovative” to persuade people that restaurant careers are desirable.
“A lot of people started to look at these kind of jobs as long hours and low pay and they’ve gone on to find other positions that don’t have those same expectations. It’s sad,” Jones said.