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Rising gas prices eat at restaurants’ profits
By Dennis Quick
Senior Staff Writer
Skyrocketing gasoline prices have been a mixed blessing for Fish restaurant on King Street, according to Randall Goldman, managing partner of Patrick Properties, which includes Fish.
On one hand, high gasoline prices have impelled vacationing Northern travelers whose sights initially were set on Florida to shorten their drive and vacation in Charleston. This has brought more customers to Fish, Goldman said.
On the other hand, the upsurge in fuel costs have led to distributors tacking on 10% to 20% surcharges to items they deliver to the restaurant.
“My profit margins are shrinking, but there’s nothing I can do about it,” Goldman said, adding that increasing menu prices to offset the surcharges would drive away diners. “Eating out is the first thing to be cut when people cut back on discretionary spending.”
Local restaurateurs are bracing themselves for the bite gasoline prices threaten to take out of their business.
“We’re monitoring this very closely,” said David Clark, operations director for Wild Wing Café and president of the Greater Charleston Restaurant Association. “Our fear is that our prices will have to go up because distributors’ prices are going up. We’re taking a wait-and-see approach.”
Nationally, the gasoline price hike has already begun taking a toll on consumer restaurant spending, according to an Aug. 29 press statement from Technomic Inc., a food industry consultancy based in Chicago. A survey conducted by Technomic revealed 18% of consumers have reduced their spending in quick-service restaurants and 19% are cutting back spending at full-service restaurants.
“It appears that the threshold has been reached where consumers are feeling the pinch of higher gas prices and are beginning to reduce their restaurant spending,” said Ron Paul, president of Technomic Inc. “We are also seeing softness in restaurant same-store sales, which we track monthly, further validating a reduction in consumer spending.”
However, on Aug. 31 the Washington, D.C.-based National Restaurant Association presented a more optimistic picture for restaurants. Despite gasoline prices, indicators show U.S. restaurants continue to enjoy a “positive” outlook.
The association’s Restaurant Performance Index, a monthly composite index tracking the health and outlook of the U.S. restaurant industry, stood at 101.7 in July, down 0.4% from a record-level 102.0 in June. Index values above 100 show that key industry indicators—sales, traffic, labor and capital expenditures—are in a period of expansion. Index values below 100 represent a period of contraction. July represented the 27th consecutive month above 100, according to the association.
Total restaurant and bar sales in the United States hit a seasonally adjusted $33.8 billion in July, up 3.4% from their July 2004 sales volume, according to Bruce Grindy, the association’s senior economist.
Researchers at the College of Charleston are compiling consumer-spending statistics for Lowcountry restaurants, said Robert Frash, a professor in the college’s Hospitality and Tourism Management department.
Nevertheless, Frash suspects Charleston restaurants are withstanding the gasoline price increase better than restaurants in many other U.S. cities. Peninsular Charleston’s restaurants are driven by tourism traffic and located within walking distance from one another, making driving unnecessary, he noted.
And despite rising gasoline prices, Lowcountry tourism traffic has not declined, according to industry experts.
Still, area restaurant professionals are keeping an eye on gas prices.
“The transportation costs of food products could have an impact on us,” said chef Kevin Bruntz of Avondale Station restaurant in West Ashley.
Dennis Quick covers hospitality and tourism for the Business Journal. E-mail him at dquick@charlestonbusiness.com.
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