Economy Raises the Heat in the Kitchen
Restaurateurs Face Higher Costs, Fewer Diners

By Michael S. Rosenwald
Washington Post Staff Writer
Monday, June 16, 2008

Restaurant owners around the region and country are trying to contend with a double economic whammy that has hit the industry, shaking up menus and causing chefs to consider, among other things, the merits of foie gras.

Food costs are high. Try making a profit on a gourmet pizza when flour prices are up 87 percent. Diners are ordering less or staying home altogether, as their wallets feel lighter from trips to the gas station and from not seeing the for-sale signs on their block turn to sold.

Last week Carmine Marzano, the owner of District restaurant Luigino, changed out of a white chef's coat and into a suit and went to court for his first bankruptcy hearing. Not only are food costs squeezing his business, but he is also still recovering from when the 2001 terrorist attacks obliterated tourist traffic -- an important aspect of his business because he's just down the street from the convention center. He was forced into debt that has now caught up with him.

"If these conditions don't change, I don't see any light," said Marzano, whose restaurant filed for Chapter 11 bankruptcy protection. "We've got to find a way to get through this."

In this region, restaurant owners are taking creative, sometimes painful, steps to keep customers. In some restaurants, filet mignon is off the menu. It's just simply too expensive an option for owners and diners. Hostesses get sent home early. Managers seat guests and answer the phones. Marzano let his manager go and is doing some of those tasks himself.

At Equinox, a D.C. fine-dining restaurant where business is down around 5 percent, one strategy is to get as much out of a chicken as possible. That means that in addition to using the breast meat for a light chicken salad, the legs feed staff and the bones help create chicken stock.

"You just have to know how to use the whole bird," said Equinox co-owner Ellen Kassoff-Gray, who said she has accepted that she will be battling crummy economics for months to come. "We told our staff, 'Save money. We're going to have some lean times ahead.' "

And that means no foie gras on the menu, either.

The restaurant business is lean even in good times. Profit margins are typically around 4 percent, so it doesn't take a Nobel Prize-winning economist to understand that when food costs go up, restaurants are squeezed even tighter. There is little room to maneuver. The obvious option is raising menu prices, but many restaurants owners won't because they fear nobody will come.

"I see how people are these days," Marzano said. "They are saving pennies everywhere they can. I try to be good to them and hopefully they will be good to me and come back again."

Lynne Breaux, the president of the Restaurant Association of Metropolitan Washington, said restaurants are trying anything to keep menu prices from rising. "They have always been very creative animals and they are using all their creative powers not to pass on costs to consumers, and so far they are doing pretty good," she said.

Can they do enough or are the economic head winds too strong? Mintel International Group, a market research firm, said a January survey showed that 54 percent of people who dine out regularly are eating out less because of the economy. Of those cutting back, 70 percent are saving money by fewer visits overall rather than by picking more inexpensive entrees and restaurants.

Some less-expensive restaurants are reporting higher foot traffic, perhaps as people trade down. Moby Dick's House of Kabob, which has 12 locations in the region, has 5 to 10 percent more visits but is contending with higher costs. The rice that it imports from India is up 60 percent. The prices of some dishes have been raised up to 5.5 percent.

"We try to keep the price as low as we can so we can do more volume," said Moby Dick's owner Mike Daryoush.

To cope at his restaurant, Marzano stopped buying many food supplies through vendors because they were adding steep fuel surcharges. He goes to restaurant stores and wholesalers himself.

Jeff Black, the owner of four restaurants in Maryland, including the popular Black's in Bethesda, makes sure he pays his vendors within seven days of accepting an order -- a rarity in an industry that often pays up to 180 days later -- so he can use that as leverage to keep his food costs down.

"We are a good customer to our vendors, so they try to look out for us," Black said.

Cafe Deluxe, which has three locations in the region, is adding more seafood dishes because those prices haven't risen as much as have beef and chicken. Sure, fishermen need fuel to go fishing, but the fish don't eat grains like cows and chickens do. Grains are more expensive because corn is being used to make ethanol, forcing meat prices higher.

"Honestly, people like fish," said Kevin Wilcox, the restaurant chain's director of operations. "We seem to sell more fish than meat lately."

At Equinox, Kassoff-Gray and her husband/chef Todd Gray are doing more catering and are focusing on inexpensive items on the restaurant menu to help offset the $2 or $3 they have added to some entrees. In particular, they are leaning on side items, but to avoid cheapening the experience of fine dining they are describing the side items as "for the table." Waiters are encouraging guests to order a couple of side items -- err, for-the-table selections -- as a meal.

One popular selection is macaroni and cheese with black truffle. It is $9.

"It is such a great recession dish," Kassoff-Gray said. "It's filling and it has truffle in it. It's luxurious and it's cheap."

But creative side dishes won't solve the economic problems the industry is facing. They are a stopgap measure.

"It is going to take us all adjusting for a while," she said, noting this wasn't the first time the restaurant industry has dealt with an economic downturn. "We've gotten through this before and we will again."

For Marzano, this is a rough patch he never quite expected. He is an Italian immigrant who came to the District 19 years ago with $200 in his pocket and the desire to learn English, become a chef and open a restaurant.

"People still like my food, they like coming in here to eat," he said. "I like to cook and make people happy. When bad things happen, you say, 'Why me?' This can be scary. It is scary. But I'm going to let this play out. I'm going to be smiling on the other side of this."

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