Gas Prices

[rich]

With experts predicting $6 a gallon (a 350% increase from two months ago) gas prices within four to six weeks, the first casualty of these higher prices may be the restaurant industry.

This morning an all-news radio station in New York City interviewed some ten people on how the higher prices will affect them. All ten mentioned eating out as one of the things they will cut back.

Let's remember higher gas prices will have an affect on everyone - even those who don't drive. Public transportation costs will significantly rise as well as the shipping costs for goods. All of these increases will be passed along to the consumer and it won't be long before the average person will need to cut back somewhere. And it seems eating out will become the "luxury" we give up first.

While this may not affect the Per Se's of the world (the thinking is the people who frequent that type of restaurant couldn't care if gas prices went to $100 a gallon), the mid to higher mid would probably suffer the most. All you need is for the average person to eliminate one restaurant dinner a week for this to have a significant affect. The other area that may suffer is the lunch trade - several people have said they will begin the "brown bag" it to work.

Any thoughts on how this will affect your dining out habits?

[srhcb]

When it comes to gasoline prices, you usually won't go wrong betting against either what "experts" predict, or what consumers tell pollsters.

SB

[phaelon56]

It won't affect my dining habits in any way initially. I have already taken to driving more conservatively and have seen my gas mileage improve noticeably. I live in a town where the restaurant I frequent are typically within 6 - 8 miles of my house.

So if gas hits $6 per gallon then the round trip for dinner will cost me (in gasoline) perhaps $3 rather than the $1.25 I'm spending now. NO big deal.

But when food costs rise due to transportation costs.... the restaurant owner has to bump prices up to cover his/her own increased living expenses.... plastics based products (many of which are petroleum based in some way, shape or form)... and my $20 dinner has risen to $30... I'll start cooking and dining at home more often that I do at present. Unless I get a big raise at work - not that there's anything wrong with THAT

[Susan G]

I'll see a lot less money for eating out, spending so much more for my commute.

I guess this means hosting more dinner parties at home to socialize - not really a bad thing.

[rich]

So if gas hits $6 per gallon then the round trip for dinner will cost me (in gasoline) perhaps $3 rather than the $1.25 I'm spending now. NO big deal.

←

It's not the amount of money it will cost getting to the restaurant, it's the amount of money it will cost to fill up your tank every week. If 12 gallons cost $20 a few months ago, that cost becomes $72. It's the $52 a week that becomes a problem and if you have two cars - well you know the math. Couple that with all the other things that will rise in price. It could get interesting with respect to discretionary income.

[Carrot Top]

A tank of gas for me has risen from about $35. to about $72. within the last two years or so.

What that does to me when I fill up the tank is to say to myself, "If I'm going out to eat tonight, it will be somewhere close to home."

In a best-case scenario, this crisis could bring the idea of opening more and better restaurants in more areas rather than "the usual" areas. . .perhaps a bit more dispersement geographically.

Well, yeah. That's best-case scenario.

Edited August 31, 2005 by Carrot Top (log)

[rich]

A tank of gas for me has risen from about $35. to about $72. within the last two years or so.

What that does to me when I fill up the tank is to say to myself, "If I'm going out to eat tonight, it will be somewhere close to home."

In a best-case scenario, this crisis could bring the idea of opening more and better restaurants in more areas rather than "the usual" areas. . .perhaps a bit more dispersement geographically.

Well, yeah. That's best-case scenario.

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But even if you find a place a mile (or less) away, or if you can walk to the restaurant, where will the average person make up the monetary difference of filling the tank? Can the average couple afford to take a $100 a week extra hit on gas, plus an extra, say $25, on everything else and still have money to eat out at the same rate? Where does that $125 come from?

All things being equal, the cost of getting to the restaurant is the least of the problems a restaurant will face.

[jamiemaw]

I agree that restaurants are amazingly reactive economic barometers, rich.

The ramifications of rapidly escalating fuel prices will likely be far-reaching and, coupled with rising interest rates and Mr. Greenspan's attitude toward the real estate 'bubble' (if he says it often enough, it will become self-fulfilling, unlike your gas tank) will also likely have a profound knock-on effect:

BUY

1. The movement towards eating local ingredients will be further spurred. Get used to root vegetables this autumn.

2. Local wines.

3. Dining locally, i.e. at restaurants within one’s neighbourhood will become relatively more popular.

4. Local food manufacturers with excess capacity/infrastructure, especially bakeries.

5. Well-located, especially urban, mid-price point CFD concepts.

6. Restaurants in Calgary and Edmonton, Alberta, America's largest supplier of oil and gas.

SELL

1. Restaurants heavily dependent on foreign ingredients, especially with a limited shelf life, will be penalized the most. Encore une foie?

2. Fast Food Sector—especially freeway and exurban heavy chains--except KFC, which typically does relatively better in economic downturns due to higher 'value satisfaction'.

3. Restaurants that cater to a lower income (<$30,000) clientele. (In the U.S. gasoline expenditures for households with incomes over $70,000 represent 1.7% of pre-tax income; for households under $30,000, that leaps to a whopping 5.3%, or about triple. It follows then, somewhat paradoxically, that restaurants with smaller average per-person check sizes will be most severely impacted.)

4. Las Vegas . . .

5. . . . and other remote population centres without a strong agricultural base.

6. Convention-dependent cities such as San Francisco.

7. Destination dining—i.e. isolated rooms with views.

8. Resort dining.

9. Chains with central distribution hubs and commissaries.

10. Chains and independents that took on too much debt or have near-term lease renewals (<24 months out).

11. High end sushi restaurants.

12. Fish-centric restaurants and oyster bars.

13. French bakeries (at least those insistent on French flour).

14. Steakhouses.

15. Low and mid-price point Antipodean and South American wineries.

16. Restaurants with poor financial controls and forecasting ability, i.e. those that don't react quickly to these ramifications or remarket effectively.

17. Restaurants located in shopping malls; ciites with high mall restaurant poulations such as Phoenix/Scottsdale.

18. Asian restaurants with more than 35% delivery business.

19. James Beard House. Again.

All this being said, the Brits and assorted Euros have been paying these kinds of fuel prices for a generation. Oh, whoops, that's why the price of dinner in London or Copenhagen is two tanks of gas, not one. And also, perhaps, why Qatar places first on The Economist's Big Mac index, at a mere US 68 cents.

Edited August 31, 2005 by jamiemaw (log)

[Carrot Top]

I agree with you, rich. This is going to be a real problem for many people, many families, many businesses including the restaurant business.

Many people live on stretched budgets already, and many people have developed a great dependence on credit. As I listened to a lecture today on the economic conditions that led to the "Enlightenment" in Europe before the French Revolution, many of the criteria seemed the same. . .the commoner was not making enough money to survive. . .credit stepped in. . .and one would live one's life in some sort of debt-induced servitude without escape.

Looking around now, it seems spookily the same but for the fact that we have tons of cheap junk food to eat and lots of cars and lots of clothes, but instead of thinking "We've got to start a revolution to get out of this situation", we ("we") think; "How nice this all looks. . .let me get another credit card.

Obviously, our society will have to re-balance. Carpooling? More mass transit? People deciding to live near where they work? "Just saying "No" "?

But gosh, we drive around all day! To work, to shop, kids to soccer practice. . .!

I do know that when I moved house this past June, the moving company had raised its rates substantially from a year before, claiming that gas prices had taken too much toll on their profits.

Edited August 31, 2005 by Carrot Top (log)

[jvictor930]

I am taking a slightly different view on this. The only thing that might help restaurants is the forcasted economic spiral for the travel industry this holiday. If people cut out a vacation at the end of the summer/early fall, they may be willing to use some of the disposable income on eating out. Folks need to get out of the house somehow....it may be just out to eat. That needs to be capitalized upon.

Maybe the industry as a whole should do what NYC did after 9/11...prix fixe meals, discount show tickets, everything they could do to enhance the experience. Make it not just a night out, but a responsibility to bolster local business and support the community. I know that's what the hotel industry will be doing, and I'm sure the airlines (who operate on similar margins as restaurants) will be getting it together soon.

Maybe it will force people to try that great local place instead of driving 20 miles to an Olive Garden or Bennigans...

[Jonathan Day]

Let's see...with the pound at just over $1.80 and petrol at about 90 pence per litre, we're paying about $6.20 per US gallon over here. And this has been the rough price level for some time. Fuel prices are high in the UK because the government takes something like 66 of those 90 pence in taxes. Restaurants in London are still busy.

It's the shock increase, not the absolute price level that impacts spending. Eventually, people will adapt to a higher price.

[rich]

Let's see...with the pound at just over $1.80 and petrol at about 90 pence per litre, we're paying about $6.20 per US gallon over here.  And this has been the rough price level for some time.  Fuel prices are high in the UK because the government takes something like 66 of those 90 pence in taxes.  Restaurants in London are still busy. 

It's the shock increase, not the absolute price level that impacts spending.  Eventually, people will adapt to a higher price.

←

I realize that European gas prices have always been higher, but people grew up with that and budgeted accordingly throughout their life. Europeans always knew that high fuel prices were part of their cost of living index. However if your prices rise another 100% from this point, will this affect discretionary income spending?

[kpurvis]

With experts predicting $6 a gallon (a 350% increase from two months ago)

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Which experts would those be, Rich? The "experts" I've seen are predicting $4, not $6, with $3 the only price known for certain here in the Southeast.

Yes, it's a scary situation, but there's no reason to incite panic.

[rich]

With experts predicting $6 a gallon (a 350% increase from two months ago)

←

Which experts would those be, Rich? The "experts" I've seen are predicting $4, not $6, with $3 the only price known for certain here in the Southeast.

Yes, it's a scary situation, but there's no reason to incite panic.

←

It's already more than $3 here in NYC - CBS Radio had a Wall Street analyst and a commodity analyst on this morning (8:55 am DST) and both agreed that unleaded gas prices would double from this point to some $6 a gallon within the next 4 to 6 weeks. They have already risen 60 cents a gallon since Friday. I didn't get their names - if I hear the report tonight I will listen for the names.

[jamiemaw]

Let's see...with the pound at just over $1.80 and petrol at about 90 pence per litre, we're paying about $6.20 per US gallon over here.  And this has been the rough price level for some time.  Fuel prices are high in the UK because the government takes something like 66 of those 90 pence in taxes.  Restaurants in London are still busy. 

It's the shock increase, not the absolute price level that impacts spending.  Eventually, people will adapt to a higher price.

←

Do you think thet UK petrol pricing will remain aloof/immune from world markets for much longer, Jonathan? Surely Mr. Blair's treasury--like sawdust on the garage floor--won't be able to absorb those increases forever.

My own thoughts suggest, as I mentioned upthread in an edit, that high fuel prices are one important reason that FD restaurant prices run to the equivalent of two tanks of gas in London and most European capitals, versus one at home. The Economist's Big Mac Index shores this up: Qatar has the lowest Big Mac price at US 68 cents, European cities amongst the highest.

Edited August 31, 2005 by jamiemaw (log)

[Pam R]

I don't think a rise in gas prices will make me change my dining out habits - it hasn't yet.

While I odn't have a restaurant, I am in the food business and I can tell you the higher gas prices have already had a large impact. Being in the middle of the country and away from the larger cities, we bring in at least one shipment of food from Toronto each week. There has been a 'gas charge' on all shipments for the last few years - but it's been on the rise for a while now. It's a per pound charge on top of the shipping charge we already pay.

There is no way we can absorb these charges and they do get passed on to the consumer. People complain each time the price goes up, but it doesn't stop them from buying from us.

Most of what we sell isn't available locally - kosher products, mostly meat. The only places in all of Canada where they are slaughtering kosher chickens are in Montreal and Toronto - so there is no alternative. Will people be eating less meat then? Perhaps - but the gas prices have been going up for years and our sales (and customer base) have been growing in the last couple of years too.

[robyn]

I agree with the general thesis about high-end versus low-end. But that is an old story (just compare the charts of Walmart and Neiman Marcus over the last year). And I totally disagree about convention locations like Las Vegas and San Francisco. New Orleans was a major convention center. Even if it becomes a convention center again - you're probably talking minimum 3-5 years. In the meantime - that business will go to other convention cities (unlike 9/11 - Katrina will not - IMO - have a profound effect on the national psyche and cause people to stay home). Robyn

[Carrot Top]

Most of what we sell isn't available locally - kosher products, mostly meat.  The only places in all of Canada where they are slaughtering kosher chickens are in Montreal and Toronto - so there is no alternative.  Will people be eating less meat then?  Perhaps - but the gas prices have been going up for years and our sales (and customer base) have been growing in the last couple of years too.

←

If your sales of food have been rising regardless of the price increases, then obviously there is a good and solid demand for the product.

Seems to me that this makes for an opportunity for some local person to start a business providing kosher meats closer to home.

........................................................

About forty years ago, my uncle. . .(who had gone to vet school on the G.I. Bill then worked at a poultry business -when I say poultry business I mean chicken farm - in rural Maine where he grew up). . .decided that something was

missing that would be an asset to the farm. What that was, was a local source of the antibiotics that were fed to chickens (along with other various things that poultry needed that had to be made in a lab).

He started that lab in his hometown, in central Maine. That was even considered to be more in the middle of nowhere than it is now. The only single thing that he was doing "different" (at first, although later he did develop his own lab products) had to do with location, location, location. Being the local source.

Quelle business, let me tell you. Mucho dinero ahi. He eventually sold the business to "The Japanese" and stayed on as a consultant.

Nothing wrong with making the most of what might seem to be a difficulty, but which actually can be an opportunity.

Almost every cloud has its silver lining, if someone takes the time to turn it around and shape it.

[jamiemaw]

Adjusted for inflation, the average price of gasoline in the US is just about to pass its last record, set in 1981 of just over $3 per gallon, a year also--coincidentally--characterized by spiking interest rates, lowering real estate values, a recessionary economy and a large number of restaurant failures.

[Pam R]

If your sales of food have been rising regardless of the price increases, then obviously there is a good and solid demand for the product.

Seems to me that this makes for an opportunity for some local person to start a business providing kosher meats closer to home.

The population isn't large enough. We're a small business - we cater, we've run restaurants. We just moved our business to expand the retail sales and focus on corporate catering and prepared foods. So the sales of raw, kosher ingredients is a portion of our sales, not the whole shebang.

We had a slaughterhouse here - it closed several years back. They are only slaughtering limited beef here - and the level of kashrut isn't high enough for everybody. They rarely slaughter any lamb.

In addition to the meats we also bring in cheeses and grocery and specialty items. Some of these items come in from Toronto, some from the US and some from Israel. There is no way our population would ever be large enough to make it possible for all of these things to be produced here.

[Carrot Top]

We had a slaughterhouse here - it closed several years back.  They are only slaughtering limited beef here - and the level of kashrut isn't high enough for everybody.  They rarely slaughter any lamb.

In addition to the meats we also bring in cheeses and grocery and specialty items.  Some of these items come in from Toronto, some from the US and some from Israel.  There is no way our population would ever be large enough to make it possible for all of these things to be produced here.

←

Well, a pipe dream perhaps it was, for me to think of.

I like pipe dreams, though, and adore the idea of small independent businesses.

It seems that many small businesses have gone under due to tightening regulations of all sorts (I am not saying this is "bad" just that it "is") and now there will be the extra pressure of higher gas prices. Not easy. But it does sound good that your particular customers are loyal and happy.

It would be so wonderful if this thing, this gas price thing, did create niche businesses though. One must just hope.

[Pan]

It can be assumed that increases in gasoline prices will cause some degree of increase in pricing in most New York City restaurants, because the transportation costs of ingredients will increase their costs to restaurateurs. I doubt the increases will be very drastic, though. I expect that my $7.50 lunch special at Teresa's may increase to $8.50. Worst case scenario, maybe it would increase to $10. Anyway, I doubt gasoline prices will have much effect on my dining habits or those of many other New Yorkers who rarely or never drive, unless they help to trigger a general recession or worse.

Now, on the other hand, in LA...

[Mottmott]

It can be assumed that increases in gasoline prices will cause some degree of increase in pricing in most New York City restaurants, because the transportation costs of ingredients will increase their costs to restaurateurs. I doubt the increases will be very drastic, though. I expect that my $7.50 lunch special at Teresa's may increase to $8.50. Worst case scenario, maybe it would increase to $10. Anyway, I doubt gasoline prices will have much effect on my dining habits or those of many other New Yorkers who rarely or never drive, unless they help to trigger a general recession or worse.

Now, on the other hand, in LA...

←

Don't forget that restaurants and their customers will also face high heating costs this year. And generally, when oil goes up, natural gas does too. My memory may be faulty, but I think Louisiana is some sort of hub for nat'l gas.

I think lower end restaurants may feel the pinch much more than luxury restaurants as people have less disposable income.

[Pan]

Don't forget that restaurants and their customers will also face high heating costs this year.  And generally, when oil goes up, natural gas does too. My memory may be faulty, but I think Louisiana is some sort of hub for nat'l gas.

I think lower end restaurants may feel the pinch much more than luxury restaurants as people have less disposable income.

←

Very good points. On the Eastern Seaboard of the US, we are very dependent on home heating oil. In the short term, the extent of the pinch from higher prices will depend a good deal on pure luck: How cold the winter will be. If the Farmer's Almanac is right, and the winter is very cold, we all -- and many low-end restaurants, specifically -- could be in trouble. On the other hand, if the winter is as mild as some of the winters we've been having in the last few years, the effects may be moderate.

[rich]

Thought I would bring this back based on recent events.

Listening to the business reports this morning several people were interviewed about the soaring price of fuel. Most were asked how they were going to cope. Two answers struck me.

One group of people said they would eat at home and only eat out on special occasions. The other group gave a more interesting answer - saying instead of going to higher end restaurants, they would begin to frequent family-style places.

Does this mean it will be tough to get into places like Red Lobster, Olive Garden, Wendy's, McDonalds, Pearsons etc.?

Interesting how higher gas prices may become beneficial to these types of restaurants. And more interesting how restaurants appear to frequently top the list of "give ups" when gas or other commodity prices rise.

Edited April 24, 2006 by rich (log)