Restaurants cope as cost of doing business rises

Jack McFadden saw his food costs creeping up at the Gables at Chadds Ford. So in January, he installed a scale to weigh the fish and meat coming in.

"When salmon was $4.95 [a pound], OK," McFadden said. "Now it's $13.95. You really have to make sure you're not paying for ice and water."

Joe Wolf, director of operations for Georges Perrier and Chris Scarduzio's fancy restaurants, joined the movement toward more profitable "small-plate" menus.

"Instead of that $34" entree, he said, "they'll order a couple plates for $12 or $14 and a glass of wine or two."

Local restaurateurs are finding ways to cope with the dramatically rising food, energy and labor costs that accompany the lagging economy. But while the national restaurant scene is seen as hurting - particularly among casual-dining chains - the mood seems more hopeful in the Philadelphia region, home of more than 7,400 full-service restaurants.

"Philadelphia is resilient," said Sam D'Angelo of Samuels & Son Seafood Co., a supplier with 1,000 clients from Baltimore to North Jersey. The city's restaurant economy, he explained, stays constant because it does not rely on transient business, as do New York's and Washington's. For now, his Philadelphia business is steady, he said.

Traffic is still brisk and reservations are hard to come by at the city's hottest tables, such places as Amada, Osteria, Buddakan, Supper, Xochitl and Matyson - especially Friday and Saturday nights.

But most independent restaurateurs have had to find ways to fight the sagging bottom line:

Pulling expensive, out-of-season fruit garnishes off the plate, as did Berwyn's bistro M.

Driving traffic on slower nights by running more specials, handing out discount coupons, and joining "restaurant weeks" sponsored by local groups, including the South Jersey Independent Restaurant Association's semiannual $35 promotion ending today.

Bypassing wholesale suppliers and buying direct, as well as at bulk retailers such as Costco, Sam's Club and Produce Junction. Patrick Feury of Nectar in Berwyn, who said business was up, saved $1 to $1.25 a pound by buying lobsters directly from a supplier in Maine; he also switched from $11-a-pound Maryland crab to $9-a-pound peekytoe crab.

Venturing into off-premises catering, as Stephen Starr did in a bid to capture a new market; he said his restaurant sales were steady.

At least one business has it good: Villecco Menu Service in Mount Laurel, which prints menus for about 800 restaurants. Business this quarter is up 20 percent over last year, owner Marco Villecco said. Pizzerias, whose costs have risen meteorically, are redoing menus printed only last fall to reflect higher prices - "maybe a dollar or two."

Some restaurateurs have raised prices, while others are resisting. "Raising prices just to bring in more income is a disastrous move," said Mark Smith, chef-owner of Tortilla Press, two Mexican restaurants in Camden County, who fears that traffic will decline if his nudge up.

For the same reason, restaurateurs also seem loath to cut portions.

But holding the line costs them profits. A jug of blended oil rose from $22 to $53 in three months, said Kevin Meeker, a 30-year veteran who owns two restaurants. For years, Joe Palombo of Joe Palombo's Mirabella Cafe in Cherry Hill paid $14.50 for a 50-pound bag of semolina flour for pasta. Last week, it was $44. Prices are rising so quickly, it's hard to comparison-shop, Palombo said.

The regional office of the Bureau of Labor Statistics on Friday reported that the average price of food eaten at home had risen 2.3 percent from February 2007 to February 2008. Food eaten away from home rose 3.7 percent.

Two restaurateurs have found bright spots. Alison Barshak, building a second restaurant in Montgomery County, said low interest rates were shaving her construction costs. Dave Magrogan, who owns the Kildare's chain of pubs, said he saw the climate "as a period of tremendous opportunity" for independent restaurants, which can change course more nimbly than the big chains. As companies close stores, smaller operators can cut deals with landlords, he said. Kildare's recently pared food costs with a new gastropub menu that includes dishes such as poutine and beer-steamed mussels.

Nationally, the downturn has hurt the lower end and midrange of sit-down dining, said analyst Darren Tristano, executive vice president of Technomic Information Services, which tracks the food-service industry.

Fine dining has been hurt less, he said, as wealthier patrons and business diners seem less sensitive to price. Witness the rise in steak houses in Philadelphia, including the planned Union Trust near Washington Square and Del Frisco's in Center City.

"It's meat, it's meat, it's meat," Wolf said, channeling his inner Gertrude Stein as he described the exotic cuts at Table 31, a meatery that Perrier and Scarduzio plan to open this spring in the Comcast Center.

"People want to indulge themselves," said patron Harry Lusk, a golf consultant from South Jersey, at the new McCormick & Schmick's seafood restaurant in Cherry Hill.

Many fast-food chains are not doing too badly, and this explains why snacking ("eating in your car") is a trend, said Harry Balzer, vice president of the market research firm NPD Group.

In September, NPD counted 15,572 restaurants - 8,118 quick service and 7,454 full service - in Philadelphia and surrounding counties. Philadelphia's restaurant-per-capita total is 4 percent higher than the American average.

Could the city be over-served?

It is hard to tell. Many restaurant projects are on the books for coming months - though most were conceived in better times.

Most newcomers seem to be considerably more modest, intended to feed the rising Center City population and tourists rather than draw suburbanites.

"Something has to give, and it will," said Rich Landau, who owns Horizons, a vegetarian restaurant near South Street.

Suburban restaurateurs interviewed said rising gas prices tended to keep people closer to home.

Meeker reported solid business at Cork, his restaurant in Westmont, while his Philadelphia Fish & Co. in Philadelphia was off 20 percent.

"Thank God for the bar," he said. "In bad times, people drink."