Higher costs, lower profits
Many restaurant owners haven't noticed rising energy prices just yet because they have long-term agreements with their landlords — prices are frozen for a contractual period until it is updated. Still, some are apprehensive that high energy and gas costs could make their businesses impractical, as they will further reduce their profits.
"We'll probably have to use candles,” Milan-based co-owner of Trippa, Pietro Caroli jokes. Italy's household electricity prices will jump 55% in this quarter as gas prices rise 41.8%, according to predictions of the Italian Regulatory Authority for Energy (ARERA). "There's no way for us to reduce our energy consumption because we have never used more than what we actually needed. We've been very rational in this matter and try to never waste our resources,” he says. "A price increase will mean that we'll have minimal profits, which is very concerning.”
Profit margins are lower than ever in the food industry since the pandemic hit. "In general, there are so many things rising in price these days, with Brexit, Covid-19 and staff shortages. It's fighting the fire from all angles,” says London-based chef Andrew Wong, from award-winning A.Wong restaurant. “We expect energy bills to nearly double now,” he adds.
Market indications of growing demand across fuel sectors signal that further price increases may be in store, and have led to recent speculative buying, pushing prices even higher. In general, 2-3% of a restaurant’s turnover is spent on utilities (including electricity and gas). "A typical 40-60 cover restaurant would expect (prior to increases, of course) to spend 600-830 euros per month, based on a €350,000 turnover,” explains restaurant consultant Claire Love from Loves Consultancy in Birmingham, UK. This monthly value may now increase by around 50% in a realistic future scenario.
A continuous cycle
The ripple is felt throughout the whole industry. Rising fuel costs impact not only restaurants with increased bills, but also suppliers that are affected by increases in warehouse and transport costs, which, in a cycle, further increases the costs of restaurants. Suppose a restaurant can't get its required daily goods. In that case, it will need to consider storage, menu options, and further investments not possible to absorb, especially since most businesses now operate without the financial buffers they had prior to the pandemic.
"Financial reserves have typically been exhausted, keeping restaurants afloat when they were forced to close, but still were faced with bills, such as utilities, telephone, website costs, commitments to PR, consultants, small independent suppliers, landlords that weren't able to freeze rent payments, and the list goes on,” explains Love.
Where possible, many businesses have decided to increase menu prices, or keep them the same but take a more economical approach when making dishes. Others had to rely on even harsher measures. "One of our clients has now shut lunches due to increased running costs - and a decrease in labour, a whole other issue - which has significantly decreased their running costs. They are also looking at tariffs that offer reductions for nighttime use for this site, as they no longer need as much electricity during the day,” says Love.
On the energy crisis, Love suggests sourcing more electric-compatible equipment rather than gas, even if it ironically means spending a fraction more in electricity. No gas is used and less heat is produced with electric equipment, so extraction fans are not working as hard to remove hot air, bringing costs down.
The consultant also says that it might be time for restaurants to seek more sustainable practices, like trying to work with suppliers to team up on deliveries so only one van (and not 3 or 4) comes on-site (spending less on fuel), working harder to recycle rubbish, and other measures. "Everything is urgent to keep profits margins at this moment,” warns Love. While the future looks set to become more turbulent, it will be necessary to use less energy going forward.