Unpredictable Costs: Key Financial Concerns of Restaurants

For restaurant owners, it seems like everything is a major concern and, in reality, it is. Almost every conversation I have with new clients starts “before COVID”….. They are longing for the days when their issues were the day-to-day staff showing up late, equipment breaking down or taking care of guest issues. All these issues were predictable and were problems that they could handle because they were all in their control. I’ll break down our key financial concerns, but what is stressing us out more than anything else are the issues that are out of our control and lowering our sales and profit margins. The biggest financial stressor is that our customers don’t understand why prices are skyrocketing and their reaction is to either go out less, spend less or look for the cheapest meal possible. 

Labor, Uncontrollable in Every Way

Frustration 1 – Wages. Labor in some states has jumped 30 percent or more in the past few years and in many areas the minimum wage will jump another 25 percent in the next 18 months. One of my clients’ payroll in 2022 was $300,000 and today, they have the same number of employees, but their payroll has topped $400,000. Unfortunately, the customer does not understand that a $100,000 increase in payroll is going to force prices to go up. 

Frustration 2 – Wages. While minimum wage climbs within a state the local areas can set even higher minimum wage. However, one area in California wanted to have a $20 minimum wage for fast food restaurants. I have found that most politicians have no business experience or any understanding of how business works. This separate higher minimum wage reminds me of what Marshall McLuhan had said about unintended consequences, “every solution becomes a problem.” By implementing this financial change two things happened.

1. Many cooks left their restaurants because they could work in fast food and get a $5 per hour raise.

2. This forced restaurants in the area to increase their staff pay by $5 or more. 

There is no way for owners to predict this type of overnight payroll change of 25 percent.

Food Cost Is Not What it Used to Be

Remember when you could count on raising prices twice a year. That is what is known as the good ole days. Over the past year I have had some customers raising prices and printing menus weekly. What can you do when egg prices go from $2.86 a dozen (.24 each) to $10.00 a dozen (.83 each). This takes the cost of a three-egg omelet from .72 to $2.49! Again, this was unprecedented, unpredictable and out of our control. 

This year alone tariffs have driven the cost of coffee up more than 20 percent and tea pricing has seen a rise of as much as 80 percent. Tariffs have increased beef, seafood and poultry prices by as much as 5 percent. Some food prices have gone up and down so dramatically over the past 18 months that many owners find themselves changing their menus monthly.

The Government Continues to Reach into our Pockets for More

In the state of Illinois employers are required to offer a 401(k) program. They are not required to match (at this time) but many owners are now spending $3,000 to $5,000 for someone to set up and administer the program. Again, it was out of our control and was certainly not predictable. In 2024 Illinois implemented the paid leave for any reason and affects employers of any size. The employee receives 1 hour of paid leave for every 40 hours. Again, nice idea when you’re the governor but what about those businesses that only have two to five employees? A small employer loses 25 percent of their workforce, now is paying overtime and the wages for an employee who is not working. Unintended consequences are out of our control as well. 

The Moral of the Story

The restaurant industry is tougher than ever and in order to make a profit you need to step back, look at the whole picture and make improvements and adjustments every day. We can’t be shy about raising prices to keep up but at the same time we need to be creative about how we are serving our products. To keep the guests coming in there needs to be a perceived value to this new pricing reality.