Aug 5, 2022 - Business

Restaurants offer promotions to battle inflation costs

Illustration of a piece of steak on a flat top grill in the shape of an upward trend line
Illustration: Sarah Grillo/Axios

On Thursday, Rich Schneider, co-owner of Denver's Raquelitas Tortillas, had two conversations just hours apart that together define the contemporary restaurant industry.

  • He spoke with a fellow owner in Greeley about food cost increases, and then later to an industry promoter about whether restaurants can survive inflation.
  • "It's front and center on everyone's mind," Schneider told Axios.

State of the plate: Throughout the food chain, costs are increasing as prices rise on commodities and energy, supply chains are disrupted and pandemic-caused labor shortages persist.

  • For restaurant industry players, the cumulative effect is represented in lower profit margins and "closed for business" signs.
  • For consumers, it's reflected in menu price hikes and new surcharges on bills.

What's happening: The troubling trends are forcing Denver restaurants β€” which are still seeing less foot traffic than before than pandemic β€” to get creative.

  • Noodles & Co. debuted a value menu that includes seven items for $7 each.
  • Hapa Sushi locations are offering $15 off as part of their "inflation relief" promotion.
  • Little India of Denver advertised a $10 all-you-can-eat lunch buffet at three of its locations in July.

What they're saying: "We get it! Rising inflation is driving up the costs of gas and everyday items," Little India's Robert Yoakum said when announcing the promotion.

By the numbers: In June, wholesale food prices were up 13% year over year, while menu prices increased 8%, according to the National Restaurant Association.

  • When costs go up, "you can't just pass that straight into your menu prices without having very angry customers," says Denise Mickelsen at the Colorado Restaurant Association. "That makes it challenging to do business."

Zoom in: Tight times typically force restaurants to reduce quality, such as moving from top-grade produce to the second tier. That's evident at Performance Foodservice, a prominent distributor. President Matt Browning says his product mix is changing as "people trade down" for lower-cost goods.

  • In June, restaurant distributor sales were down 4.1% β€” which Browning calls "a pretty big reduction for the industry."

At Raquelitas, Schneider says business is strong, but he is warily watching the commodity markets.

  • A year ago he instituted a 15% price hike, and then another 10% increase in January. In June, flour tortilla prices rose 10%. Corn tortillas may come next in October.
  • "At this velocity, if you don't really look at your costs and react to them, you can lose money at a rate you never dreamed possible," he says.

What to watch: The next question on his mind: "Is this the new norm?"

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