Hit with rising food costs, indie restaurant owners cope creatively

When Jeremy Ashby, executive chef of the restaurant Azur in Lexington, Ky., noticed food prices creeping up over the past year, he was initially stumped. He couldn’t save by buying in bulk, because his 3,500-square-foot business didn’t have enough storage space. He couldn’t cut down on staples like butter, the price of which soared at various points last year, because doing so would sacrifice taste. He eventually found the answer in his neighbors’ back yards.

“I found that turning to local sources really helped: We use local cheese makers, farmers and the aquaculture programs of local research universities,” he said. Ashby said he found that by going to local farmers, he could buy fresher foods in smaller quantities and promote the locally sourced flair in his dishes. “I pay a premium per pound, but to buy tomatoes from (distributor juggernaut) Sysco, I have to buy a case. From a local farmer, I can buy two pounds and only pay for what I need.”

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Ashby’s solution isn’t typical (he’s partly helped by a Kentucky program that allows him to recoup up to 20 percent of the cost of locally grown products). However, his is a familiar story for independent restaurateurs across the country.

Squeezed by rising commodity costs, independent restaurant owners are trying to shave pennies off of their food bills any way they can, including by sourcing locally, haggling with their vendors, or serving smaller portions. In many cases, these efforts are an attempt to avoid passing the costs along in the form of menu price increases, which some owners fear will scare off customers in a still-fragile recovery for the dining industry.

In a survey of its members, the National Restaurant Association found that 20 percent said food costs were their “top challenge” in November 2011, while only 8 percent said so the year before.

“The independent restaurants really have to out-compete the chains,” said Howard Cannon of Restaurant Consultants of America. “It’s the great shaking-out. The ones that are strong financially will do even better, the ones that struggle will be dead.”

Wholesale food prices were up 7.8 percent in November from the same time in 2010, according to the Bureau of Labor Statistics. Pork, vegetables, flour and coffee experienced some of the steepest increases.

And while the U.S. Department of Agriculture says it expects there will be some abatement this year, the agency predicts food prices will increase 2.5 to 3.5 percent in 2012.

Independent restaurant owners are especially affected because they lack the economies of scale that chains have, so they can’t command the same low prices on basic goods.  That can put them at a disadvantage in a fiercely competitive industry with high failure rates and slim profit margins — two to four percent, in many cases.

“As if the business wasn’t bad enough, restaurants are being clobbered by food costs,” said Bob Goldin, executive vice president of the food industry consultancy Technomic. “But independent restaurants are really good at innovation, and they’re getting sharper.”