Higher costs weigh on small businesses

Looking Closer

Small businesses, it’s hoped, will generate jobs to help fuel the nation’s economic rebound. But owners find their bottom lines buffeted by issues beyond their reach, from rising prices for supplies to government policies. Today the AJC tells the story of one restaurant-bar owner who took the unusual step of detailing to customers how distant moves prompted him to hike menu prices.

Atlanta barkeep Brian Maloof added up the toll as he took food deliveries one recent morning outside his landmark tavern, Manuel’s.

“That 20 pound case of bacon …” he said, pointing and shaking his head. “That’s $88. A year ago, $57. That 10 pound case of tuna? $107. Used to be $55.”

For Maloof and other restaurant owners, the cost of everything is going up. It’s not just food, drinks and supplies, either. With a federal mandate to provide health insurance looming, they also face paying to offer the employee benefit if they don’t already.

Maloof plans to restore health coverage, which he’d cut in recent years, at a cost he estimates at $40,000 to $60,000 a year for his 52 workers.

It’s all prompted him to raise menu prices across the board for the first time he can remember. Rather than hope no one would notice, Maloof posted his reasons in a Feb. 28 letter on Manuel’s Facebook page, which, he acknowledged, “is kind of taboo.”

Small businesses including restaurants are often buffeted by forces beyond their control. It could be a tsunami in Asia, a drought in the Midwest or even changes in local public transit schedules. Each has affected Maloof, who wrote: “because of many circumstances beyond our control, Manuel’s is facing some big business hurdles.”

“It’s the quintessential challenge faced by smaller independent businesses and the entrepreneurs that run them,” said Tim Mescon, an economist who is now president of Columbus State University.

“I think he’s saying, ‘I hope you understand we don’t have any alternatives. We have an obligation to our employees and to our own sustainability.’ At the end of the day, consumers can answer with their feet. This is either going to resonate with them, or they’re going to go somewhere else.”

Tad Mitchell, owner of the Six Feet Under Pub & Fish House, said, “The climate’s really tough right now. Margins are shrinking, for sure.”

Commodity prices are up, fuel surcharges have been added, and licensing, regulatory and security costs are increasing, he said. He’s not certain what his tab will be for health care if adds it instead of dealing with any penalties, but he figures it will be costly.

Mitchell said he boosted prices two years ago, when food costs started rising, “to get ahead of it … so we could make some margin we knew we wouldn’t make later.”

Maloof, by contrast, said he regrets settling for small markups on selected menu items until now.

Maloof, 47, took over the iconic establishment from his late father, Manuel Maloof, the tavern owner who went into politics and became DeKalb County CEO.

Manuel’s, at the corner of North Highland and North avenues, has been a must-stop for a half century for Democractic politicians courting votes. Bill Clinton came and ordered two meals because he liked the food so much. On Tuesday evenings, local officials and city functionaries usually gather in a back room to swap gossip and talk politics. The atmosphere on election nights can be electric.

Such traditions helps keep business steady, and Maloof says he’s squeezed pennies everywhere he can. But because of soaring costs he needs more revenue.

Why his food and product costs keep going up is a mystery to Maloof. All he knows is that it’s always something. Tuna spiked because of the tsunami when fishing restrictions reduced supply, he was told.

So, the blackened tuna sandwich will go from $9.95 to $11.25.

And then, “every year there’s a drought or a flood. Sometimes I wonder if they look for a reason to make an increase palatable.”

Karen Bremer, executive director of the Georgia Restaurant Association, said restaurant food costs have increased 30 percent over the last six years, far outpacing the rate of inflation.

“Since we’ve been in a recession, most restaurants have been very slow and very cautious to raise prices,” she said. “There’s a direct correlation between raising prices and losing (some customers).”

Another issue Maloof and other restaurateurs wrestle with is health insurance.

“For decades, we proudly provided it,” he wrote in his letter to Facebook “friends” of Manuel’s. “But like so many small businesses trying to stay competitive, we were forced to drop it when we confronted years of nearly 30 percent premium increases and of competing against businesses that did not provide it.”

The Affordable Care Act, which will require health insurance coverage for more people, will help “level” the competitive field, Maloof said, but at considerable cost.

Maloof says he operates his business differently, particularly when it comes to employees. He hires prisoners in work release programs, keeping some on afterwards and even promoting them. He is closing earlier so his late shift workers can catch MARTA after schedule changes.

Food industry analyst Harry Balzer, vice president of The NPD Group, said, “In the end, it’s capitalism. The costs are passed down to the end, to the consumer.”

One of Maloof’s concerns is that more people are heading to fast food drive-throughs because of their speedy service and lower cost.

Customers said they don’t expect to change their habit.

“I have a hundred places to choose from, but I’d rather support a place like this that’s been around for 60 (actually, 56) years,” said Andy Petruccelli, a construction project electrician, tearing into a plate of country fried steak.

Marc Merlin said that while Manuel’s “can’t compete with the price of a Happy Meal,” its prices are “still reasonable and well below market in some cases.” Plus, there are the intangibles that separate the place from more generic competitors.

“It’s a community center,” Merlin said. “And there’s a real sense that we’re all in this together.”

Maloof says he’s been heartened by the positive response to his letter so far. One customer left a note on a napkin at the bar that said, “We came here today to support (the) decision … to reinstate employee health insurance. We’ll be back no matter how high prices get …”