Why restaurant prices aren’t coming down despite lower inflation

Angle down icon An icon in the shape of an angle pointing down. Central City Tavern outside of Atlanta. Central City Tavern Food inflation at restaurants is still hitting Americans hard.For one restaurateur, the increasing costs of rent and labor are driving prices up.Even if inflation comes down, the restaurateur said the damage is done and we’re not going back. 

Despite lower inflation, many Americans experience sticker shock when dining out. But one restaurateur warns that customers better get used to the high prices.

Brian Will, owner of Central City Tavern in the Atlanta suburb of Alpharetta, sells a BLT for $15.95. While that may sound steep for a simple sandwich, he told Business Insider a lot more goes into the price than just the cost of the ingredients and that lower inflation won’t change that.

“The part people don’t understand is that even if inflation comes down, the damage is already done,” Will told Business Insider. “There is a misconception that if inflation drops from 8% to 5% to 3% that prices come down. They don’t. Inflation is a compounding issue. The 8% increase is still there, as well as the 5% increase, and the 3% is added to it.”

In other words, lower inflation is not a cure. Rather, it is just a gauge of where we go in terms of prices for the future.

During a January 3 interview with Stuart Varney on Fox Business’ “Varney & Co.” Will explained that the ingredients that go into the sandwich cost about $5 but that inflation in other areas of his business cuts into that $11 gross profit margin per sandwich.

In addition to the cost of food, he also pays $20,000 in rent, $6,000 in utilities, and $60,000 in labor every month. That’s $86,000 in base costs before the month starts, and according to his calculations, he would have to sell 93,000 BLTs just to break even.

According to Will, the sandwich price was $12.95 before the pandemic. The current price represents a 23% increase in almost four years.

The Central City Tavern BLT. Central City Tavern

To make matters worse, Will’s business costs keep rising.

While Will’s customers haven’t complained about the prices in his restaurant, he noted that people aren’t eating out as much as sales have dropped by 15% since the start of the pandemic.

Labor and rent have hit Central City Tavern hard

Labor and rent are the main expenses that eat into Will’s potential profits.

Labor has been especially hard on Will’s business; he said the cost has gone up even though he employs a smaller staff.

“One of the things we’ve had to do is cut back on the number of employees working, due to the increased wages for each employee on payroll,” Will told Business Insider. “So we pay more, but we pay less people.”

According to Will, payroll for his restaurant has risen 30% since the start of the pandemic, even though he employs 13% fewer people.

Additionally, Will signed the lease for his restaurant before the pandemic, with built-in increases every year. Of course, that agreement was made in a much different economy.

So even though the average monthly revenue at his restaurants has dropped $350,000, his rent goes up every year, further cutting into the stores’ profits.

Food inflation continues to shock consumers

As Will noted, inflation has impacted the entire supply chain and is compounded all the way from the start to the customer. But what the customer sees on a day-to-day basis is the price on the menu.

A $16 BLT may be jarring, but it might not be the most shocking compared to price hikes we’ve seen at other restaurants recently.

For comparison, a $16 McDonald’s burger meal recently went viral and became the poster child for inflation leading up to the 2024 presidential election. While that meal comes with fries and a soda, many were shocked at the price.

Overall, McDonald’s prices are up about 10% this year, and the company plans to raise them another 10% next year.

McDonald’s meal. Patcharaporn Puttipon2465/Shutterstock

Inflation hits the cost of many things, but food prices appear to be particularly vulnerable. Prices have been rising since 2020, which is one of the reasons Americans feel sour about the economy despite data suggesting it’s in a strong position.

Overall, food inflation was down to 1.3% in December. However, if we look more specifically at prices for food away from home at restaurants, it was still 5.9% higher in December, year-over-year. That was well above the 3.4% overall inflation and among the highest inflation rates across the tracked categories, including food at home, energy, vehicles, apparel, medical care, shelter, and transportation services.

Inflation may come down further, but all that means is next year, maybe the BLT is only $17 instead of $18.

This article was originally published by a www.businessinsider.com . Read the Original article here. .