That may be the case for some....but that is not the case for all. For one ancedote, my father in-law runs a restaurant with my aunt in-law (his sister). They are the only workers, and split the profits evenly. They are in the midwest (low taxes), and own the restaurant's property/building. They were able to completely shut down during COVID and restart back up, and have survived several economic downturns.
They are still worried about the long term health of the business because of enternal cost increases (food, supplies, etc.), and are honestly thinking of just shutting down their restaurant and retiring rather than raising prices. They honestly think that if they raise their prices to get the same profit (NOT increase, just to keep it the same!) they have been getting, no one will come anymore because the cost is too much.
They by comparision to a lot of other business are lucky! They don't have to worry about rent at all, and they only have themselves to pay. Both also have other external sources of income (their spouses works), and have absolutely zero debt.
I can't imagine how it is for business that have rent (and possibly rent backpay) and employees they need to pay. I went to Northern VA (Reston) before and after COVID....so see almost all of the local restaurants and a great local grocery store wiped out because the property management were so unforgiving for rent.
I'm sure things are more complicated than you describe, but it seems like they fear increasing prices will lead to closing, and to avoid this they're... just going to close?
There is a certain amount of investment needed to keep going. If you are going to close the restaurant next year you can keep the current tables, otherwise replace them before they get too worn out. Or maybe it is the fry machine at the end of life, replace it for $50,000. If the restaurant continues for a few more years it is worth it, to fix/replace things, but if the restaurant is doomed it is better to cut your loses.
Even in the best of times restaurants are the hardest business to run successfully. These are not the best of times, and (as always) it isn't clear what the future will hold.
McDonald's fryers are generally just standard commercial fryers with preset temperatures and timers. The only custom part is the (separate and standalone) machine that measures out standardized portions of fries into baskets, and while I'm sure they'd call it a trade secret it's really just a big plastic hopper and some sort of weight sensor arrangement.
Perhaps with the entire hood/exhaust and fire suppression system. But not a simple two basket fryer. When I bought mine (new) in 1995, they were roughly $3K. And this had a built-in filtering system.
Actually, to spend $50K on a fryer system is pretty hard:
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Sorry, should have been more specific! More correctly, they are debating if it's just time to retire now and be grandparents full time rather than risk losing a lot money in the restaurant due to increased prices, then being forced to retire.
I assume "closing down the restaurant and retiring" means they will sell the restaurant (or at least the property), but I am not sure to be honest?
Would raising prices 5 or 10% be so catastrophic to revenue that they couldnt even give it a few weeks? Or are they looking at a 50%+ price increase?
If they want to retire anyways, then good for them. But a lot of businesses have had to raise prices this year, including grocers, which are arguably restaurants only competition. I think folks would understand.
If raising the prices drives away customers, you have now lost a notable value if you try to sell. Brand perception is (almost) everything. Unless you offer something truly unique or exceptional, you're replaceable in just about every market.
There was a local beer taproom/bottle shop that I frequented a lot for years. Even as craft beer became more prominent and there were more local options, I liked it enough to keep going, but fundamentally there came a point where they raised their prices enough that I started going elsewhere, and once I broke that habit there was never a big reason to go back unless I was meeting someone else there once in a while.
In this case, "enough" was in the 20% range, but given what's happened to food prices lately I don't think 5-10% is a realistic number for a restaraunt either.
> If raising the prices drives away customers, you have now lost a notable value if you try to sell. Brand perception is (almost) everything. Unless you offer something truly unique or exceptional, you're replaceable in just about every market.
Agreed in general terms, but who is going to buy a business that cant even cover its costs? It sounds like this business has a negative expected value without raising prices.
Is this inflation creeping up in all the expected places? The value of goods is the same but the value of the USD is lower and thus we must increase costs. I don’t see it impacting brand perception if all prices go up.
>They honestly think that if they raise their prices to get the same profit (NOT increase, just to keep it the same!) they have been getting, no one will come anymore because the cost is too much.
That may be true, but you mentioned they're in the midwest. So am I. I'm in the heavy hitter, Chicago, but I'm from Smalltown, Midwest. I can say that NOTHING is free. Everything is a trade off. All those years of low taxes? Yeah, no one has any money in the midwest. Raising prices may well run people off. They already got the reduced-risk benefit of the midwest for decades, ability to own the building, lower taxes. Having a poorer local clientele was the price for those securities. That was part of the trade off.
You aren't just flat out "getting a better deal" as they probably felt, doing business in the midwest vs coasts. It is absolutely not outright just a "better place to do business". Other than perhaps our environmental stability (the greenhouse effect matters less, no fires, abundant fresh water, no fault lines outside of the St. Louis locale, etc.), those things are starting to matter in a big way, but are of limited benefit to a restaurant.
They already took the benefits from this area. All comes out in the end, but generally the midwest grants you more stability/security, while you end up poorer at retirement than someone that earned more dollars on the coasts. Same end result for them, just like the rest of us.
Sounds like its time for them to raise prices past what they deem to be a reasonable rise. Other restaurants in the area will likely do the same, and not pricing yourself to match can cause a drop in business as people seem to think the more they pay the better the quality (especially when your service or offering is priced on the low end of the market).
You might look at this and say charging $4 for X item is already at the edge of reasonable, but when your neighboring restaurants are already at $6 to $8 there is little reason to offer screaming deals. Its just a sign that its time to reprice to $7 to $8 for your own offerings, providing more profit to interest the dual owners moving forward. Reducing hours would also be a good idea for a owner operated business like this!
timing the market is everything. Consider this the 'first mover disadvantage'. If you price yourself at the higher end of the market before the rest of the market moves, the lower price competitors will absorb your clientele.
In addition, type of food matters a lot. A place that sells 'cheap slop on a plate' has lot less price flexibility than a boutique that sells fancy sushi.
I could get a "burek" (pastry with cheese) for 2eur, it's cheap, it fills you up, and you continue with your day.
Or I could order a pizza delivery... pizza used to be in the 6-8eur range if you lived near the restaurant, so for 12, 13 eur I could get two pizzas delivered to my home.
Then "the plague" came, the local pizzeria was closed, delivery was taken over by "app companies" (wolt here), they charge percentages of the food price + delivery cost, so the price of the pizza has gone up to 9-10eur (to cover the wolt fee), and with the delivery fee, we're talking 20-22eur for two pizzas. After the reopenings, the prices in the restaurant are the same as on wolt + with drinks, we're talking close to 30eur for two pizzas and drink.
If bureks cost 2.5eur or even 3eur (50% higher), they're still "cheap", and people will buy them. With pizza going from 12, 14eur to 20-25eur, I can make a huge amount of very good food at home, and saving 15eur to eat healthier makes it worth it.
TLDR: at some price point (that I currently feel we're at now, with some foods atleast here), it isn't worth it anymore to eat out. Everybody might rise their prices, but less people will eat outside, lowering the overall profits of everyone.
Yes, slovenia, but in other countries it's probably the same, just with different prices, and at some price point, it becomes expensive enough to eat out, that you'd rather choose to cook
I added a small cafe in Aug last year to my existing brewery's taproom because food was required by the state to reopen. I had no prior experience in running a small cafe (we do mostly paninis and similar). My thoughts roughly a year later is that food is one terrible business. We are close to braking even over that time, minus buildout. We have a wonderful staff and have been blessed with no issues in that department. But other problems are always popping up. Such as pork prices have doubled in the last 3 months. Bread went up about 15% and lots of other things change a lot order to order. We can't change our menu every week, so some weeks a sandwich is perfectly priced, while the next its food cost is 40%. Basically there are just so many moving parts, that change so frequently, so much inventory that expires in just a few days (vegs). So little max potential profit. It's usually a goal of 25-30% food cost, 30% labor cost, 40% to overhead and hopefully of that 10-15% profit (Assuming you didn't piss away 20-30% to a delivery service). I have found that being such a small operation we have yet to really hit the 30/30(60%) its more like a 65-80% in ingredients and labor. Which vary wildly from week to week as customer traffic varies. If sales were to triple overnight we could more easily get it lower and into range of the 30/30 or possibly even 25/25. Just because there would be less wasted food, less wasted staff potential, and more room for improvements. Which brings me to the point of this long paragraph. It seems (from my limited experience) like a restaurant that can't get enough sales for its appropriate overhead size, struggles. I am fortunate enough that we make enough coin to live on the rest of the business and don't need the income from the cafe, but it sure is a lot of work for very little reward that I would never want to mindfully walk into.
> They honestly think that if they raise their prices to get the same profit (NOT increase, just to keep it the same!) they have been getting, no one will come anymore because the cost is too much.
This is why hard-enforced industry standards are a good. The situation you describe only exists when the price increase happens for 1 single restaurant and the others stay the same.
However many exist in the region, as long as there's no mandatory system, they're just gonna wait it out, see who gives up first, people stop going there and go other places instead, thus increasing traffic and income without having to raise prices.
This race to the bottom will be won by those who are already the richest and can weather the financial storm the best.
It's a system by which those at the top of the rungs actively prevent anyone from passing them through hard work.
In my experience, raising prices might have a small short-term effect, but if the product is good, sometimes you'll think it was overdue !!!
It has happened to my own fees, and I still should raise them (so I totally understand the fear behind it).
Plus, the United States has significant inflation now, which you aren't used to, but in other countries it's TOTALLY NORMAL to raise prices every year.
Business owners can raise their prices slowly. You know, boil the frog. Surely that prevents the harsh reactions that customers have to suddenly having the price raised?
$9 or $9.50 for a beer is the most you can charge in some places. You'll suddenly put people off if the beer is $10.
What you can do is charge $9 for a 14 oz beer (previously 16 oz), which is roughly like charging $10.28. Can only do that trick once, though. Or you can increase the size to 24 oz and charge $14.
Yeah but $9 for a beer is already insane in most locales. Most bars charge $5-$7, going down to $3ish (or even a dollar) for a cheap beer in a lower-income area. Unless these restaurant owners are already capped out they have a lot of wiggle room
They are still worried about the long term health of the business because of enternal cost increases (food, supplies, etc.), and are honestly thinking of just shutting down their restaurant and retiring rather than raising prices. They honestly think that if they raise their prices to get the same profit (NOT increase, just to keep it the same!) they have been getting, no one will come anymore because the cost is too much.
They by comparision to a lot of other business are lucky! They don't have to worry about rent at all, and they only have themselves to pay. Both also have other external sources of income (their spouses works), and have absolutely zero debt.
I can't imagine how it is for business that have rent (and possibly rent backpay) and employees they need to pay. I went to Northern VA (Reston) before and after COVID....so see almost all of the local restaurants and a great local grocery store wiped out because the property management were so unforgiving for rent.