Restaurants fear rising fuel costs could jeopardize recovery

Two years after getting back on their feet, metro Atlanta restaurateurs are increasingly worried that rising commodities prices — especially gasoline — could end their industry’s tenuous return to good health.

Operators say fuel surcharges on food deliveries — common the first time gas prices reached $4 a gallon in 2008 — are again being used by distributors as they grapple with increasing transportation costs. Bills for many staple commodities, such as beef and corn, are skyrocketing as it becomes more expensive to get them to stores.

Nancy Oswald, co-owner of Atlanta’s Ruth Chris Steak House franchise, said in an email that “since the beginning of March, we have witnessed the following increases in prime beef prices: 6.81 percent on ribeye loins, 11.19 percent on strip loins, and 9.4 percent on tenderloins.

“As these are our three biggest sellers [New York strips, ribeyes and filets], the increase has had a dramatic effect on our food cost,” she said.

Diners, so far, seem immune to the gas price hikes, restaurant operators said. Customer traffic has not slowed down as paying at the pump has become more costly, though restaurateurs admit it is too early to draw conclusions with certainty.

But Bob Amick of Concentrics Restaurants said restaurants like his, which include One Midtown Kitchen and Two Urban Licks, are destinations that attract consumers from greater distances than typical eateries. He could lose business if diners opt to eat out closer to home instead of making long drives because gas is too expensive.

The strength of the restaurant industry is important to metro Atlanta’s $11 billion hospitality sector. The area has thousands of eateries — from dives to fast-food chains to elegantly designed independents — and the industry is one of Atlanta’s biggest employers.

In a small sample, NetFinancials, an Atlanta company that offers tax and accounting services for restaurant companies, surveyed 71 independent restaurants and found same-store sales were up 6.25 percent in 2011 over the year before. Of those surveyed, 78 percent had positive sales increases in the fourth quarter of 2011 while 22 percent saw their numbers fall. Total sales volume was about $152 million for the year.

Those figures were gathered before the latest surge in gas prices started, which said was right after Christmas.

The fear is a return to what happened in 2009, when the aftershock from the financial collapse left many metro Atlanta restaurants empty, especially high-end destinations that relied on business people dining on corporate accounts. Operators offered two-for-one specials to drive traffic while consumers traded down to fast-food and family-style all-you-can-eat restaurants to stretch their dollars.

The National Restaurant Association said food costs are the No. 1 challenge nationally for operators for 2012, edging out the economy, the top worry in 2011. Wholesale food costs grew 8 percent in 2011, the group reported. Food expenses were up 4.9 percent in 2010.

Debby Cannon, director of the school of hospitality administration at Georgia State University, said consumer confidence is better than it was two years ago and that can act as a buffer against rising prices. The warmer-than-usual winter also gave diners a little extra money in their pockets.

“Restaurants are our relief,” she said. “If we can’t go out of town, we will make eating out our luxury.”

Robert Gerstenecker, chef at Park 75 at the Four Seasons Atlanta, said restaurants have tried to absorb most of the increased costs caused by fuel prices through various methods. For instance, his tony Midtown restaurant, which has seen costs rise 10 percent to 15 percent this year, cut expenses by making its own bacon, salami, pickles, jams, chutney and spices. They’re also growing their own vegetables.

He is encouraging diners to work out special deals for eating in large groups or to carpool to events like Hotel Restaurant Week, which began Saturday.

“It’s so fragile right now,” he said of making ends meet without big menu price increases. “We hope it will get better, but there are so many chances for that stagnation to come back.”

Phil Wilkins, owner of the Atlanta franchise of Smashburger, said he expects consumers to become more cost-conscious as gas prices creep up. That, however, won’t stop them from eating out.

“They will be more cautious during the weekdays but treat themselves on the weekend,” he said.

At Big Pie in the Sky Pizzeria in Kennesaw, owner Dirk Tendick said prices on several goods — especially flour and cheese — have increased 50 percent since the restaurant opened in 2007. And because all of the supplies for the establishment — known for its 30-inch pizzas — are delivered by truck, gas prices have been a big contributor to the spike in prices.

But the eatery has held off on passing those costs to customers, hoping that repeat business and good word of mouth will bring enough volume to compensate for rising expenses.

“We have not increased our prices because trying to extract the most money possible from our customers on every visit is not in line with our philosophy,” Tendick said.

Karen Bremer, executive director of the Georgia Restaurant Association, said the key for restaurants will be to communicate to consumers how convenient dining out is, and to use social media and coupons to draw them in.

“Americans are not going to quit going out to dinner,” she said. “We saw this happen during the Great Recession, when things were even more uncertain. People continued to eat out — they just traded down.”