Why Are Restaurant Prices So Damn High? And Why You Can’t Do Anything About Them
Before Covid hit the restaurant industry, if you spent $100 for a three-course meal including a beverage at a mid-level restaurant, it seemed an extravagance. Now, in 2024, you'd be lucky to find any that don't cost that much and much more.
A 16-ounce strip steak that cost $50 five years ago you'd be lucky to find now for under $65—and it will only be 14 ounces. And the $15 Martini is now north of $20. What is going on?
Well, it's not gouging: Restaurants considered a ten percent profit a reasonable rate of return when food costs were in the stratum of 25% to 35%. Now it's tough for restaurants to keep them below 40%. That has to be passed along on a menu but only incrementally. No one's going to pay double for a bowl of onion soup that used to cost $8.
There are many reasons food costs alone have driven prices up so far so fast: Covid created supply and delivery issues that meant higher costs for obtaining high quality ingredients. But supply issues may also have to do with the weather in Columbia, where inflation can drive up the prices of coffee beans ,or Western Africa, where crop failure affects the supply and price of cocoa beans, the same as if a frost hits the orange crop in Florida or the raspberries in California—a $3 billion business in good years. Seasonality is key: According to the Bureau of Labor Statistics, the price of fresh fruits and vegetables may be 50% higher in winter months than in summer but a restaurateur cannot increase his prices for broccoli that much.
Animal proteins face other problems: If there is a drought or extreme temperatures in the Midwest, beef cattle don't feel like eating as much as they want to drink, so there's less meat on the bone to go around. Yet even at high-end steakhouses charging $165 for a cȏte de boeuf for two make very little profit on the beef they sell. The real food profit (aside from cocktails and wine) comes from $30 pastas whose ingredients might run under $5, plus labor costs. Restaurants usually price proteins at 2.5 times their cost, but a side of French fries or creamed spinach might be jacked up six times. But when potatoes cost the chef twice what they did four years ago, it's tough to ask customers to pay $12 or $15 for one cut-up potato tossed in hot oil.
If the Trump tariffs go through as he has promised, every single food item imported from anywhere in the world—salmon from Scotland, cheeses from France, soy sauce from China—will soar in price two, three or more times what they are now. American substitutes will not easily fill the void. American prosciutto can't compare with the Italian original from the region of Parma or blue cheese with English Stilton.
Wines now costing $100 on a wine list will leap two or three times—and that is over the 200% mark-up already on them.
Labor costs are through the roof and, if immigrants are banned from entering the U.S. to take restaurant jobs that most Americans won't take. Labor costs in and out of the kitchen have slashed the bottom line. During Covid (as well as after major hurricanes) many restaurant workers left the industry entirely and finding their replacements has meant making upping the salaries for dishwashers and cooks who in the past accepted $9 to $11 an hour. The minimum wage is $15 an hour in New York, but shortages of staff have forced restaurateurs to pay $25 and more, plus offer medical packages, perhaps pension plans. Union workers almost always get those kinds of contracts. One New York restaurateur who owns several restaurants told me he actually had to send an airline ticket to a former dishwasher in the Dominican Republic to get him to come back to work.
Of course, the higher up the line he or she is in the kitchen the more a cook now makes, not the paltry $11 to $15 paid in the past. And if a restaurateur is not the chef, attracting a top-of-the-line chef for a job requiring great skill, not least in pastry making, means salaries might begin at $150,000 in a major city.
Costs of utilities are up, not just within the restaurant but for the truckers (who usually have to pay for gasoline themselves) and the price of a gallon of gas has to be passed along to the restaurateur.
Last but perhaps first on this list is real estate and rents. Any restaurateur who has owned his own building for many years is in a much better position than one whose lease ran out this year, only to be renewed—if at all —for double, triple or quadruple what it was. Often a new landlord will want the restaurant out of the building and finding new premises can be prohibitively costly. Plus, as real estate overall becomes more expensive, the staff often cannot afford to live close by the restaurant where they work.. With townhouses in Brooklyn and Harlem now selling for well over a $1 million, restaurant staffers have to move farther away, which incurs commuting costs.
Yet, as I wrote recently, there is no slackening of people opening new restaurants above the fast-food level, although many fast food chain franchises s like TGI Fridays, BurgerFi International and Red Lobster have declared bankruptcy largely because their clientele cannot pay higher prices. People frequenting high-end restaurants balk at prices but still pay to fill dining rooms to capacity every night, Mid- and high-end restaurants would appear to have high check averages, but there may not be a turnover of tables as there had been before Covid. After Covid, the booked-weeks-in-advance Le Bernardin in midtown Manhattan, where the fixed price tasting menu is $370 (with wine) did not dare open for lunch for many months, until enough workers came back to their offices—including those in the skyscraper above the restaurant.
For all these reasons, the ever difficult restaurant business is having a tough time making a good profit margin, despite being full every night.
But just so you know, any restaurateur would have to be a fool right now to try to gouge a customer for a few extra bucks. He really needs your business.
