2019 Independent Mexican Restaurant Report Charts
By Ed Avis
At Pollos Maria in Carlsbad, Calif., Catering Manager Janice Davies says business is up 30 percent over last year. She attributes much of that growth to her delivery business, which she does through DoorDash.
“All in all, business has been great,” Davies says. “Even with a new Pollo Loco and Chipotle down the road.”
But food prices are cutting into margins, Davies reports.
“Avocado prices are usually $32 a case of 48s; they went up to $72 a case,” she says. “That was crazy. I even warned employees about using guacamole on employee meals. Meat prices are also up.”
That dichotomy – growing sales at the top of the profit-and-loss statement but growing expenses the bottom – is a common theme among independent Mexican restaurants at this time.
“The number of customers has increased, but so have expenses,” confirms Linda Rivas, co-owner of Henry J’s Taco House in Des Moines, Ia.
Solid Business
In our annual survey of Mexican restaurant owners, we discovered that overall business is good. Sixty percent of survey respondents said that business is up so far in 2019 versus 2018, and 35 percent said it’s about the same. Only 5 percent have seen a decrease in business.
Sales of alcoholic beverages are faring even better – 68 percent of respondents say their bar sales are up, 26 percent say they’re the same, and 6 percent report a decline.
These results mirror the strength of the economy overall. With extremely low unemployment and rising wages, people can afford to eat out more often. In a report in April, the National Restaurant Association estimated that restaurant sales in 2019 would reach $863 billion, up 3.6 percent from the year before. That translates into extra dollars in the cash drawers of Mexican restaurants.
“We have had double digit sales growth each of the past four years,” says Paul Counter, general manager of Matt's El Rancho Restaurant in Austin, Tex.
Labor Costs Up
But the same trends that are bringing more customers in the door – low unemployment and rising wages – are also increasing costs at restaurants. More than 8 out of 10 respondents to the el Restaurante survey reported that their labor costs are up this year.
“In Montgomery County, minimum wage went from $10.10 to $12.50 and is set to go up to $15 in 2021,” says Ada Villatoro, owner of El Golfo Restaurant in Silver Spring, Maryland, a suburb of Washington DC. Unfortunately for Villatoro, that minimum wage hike came at a particularly bad time: “We could not recuperate from the government shutdown at the beginning of 2019, and our restaurant is in the middle of the construction zone for the purple line train.”
The labor conundrum Mexican restaurant owners are facing is that even with rising wages, they still can’t find enough employees.
“Finding great staff is as hard as ever due to the low unemployment and the number of restaurants opening in Austin,” Counter says. “If we get really short staffed, we offer a ‘bounty’ to employees who find us great new team members.”
Rivas reports similar problems at Henry J’s Taco House. “Iowa’s minimum wage is still $7.25, but unemployment is low here and it’s difficult to find good candidates. We start at $8.75 with no experience and our top employee receives $13. It requires a set number of hours to cover a shift, so rather than cutting total hours we try to get a balance between high and low-end wage people.”
Food Costs Up
Contributing to the hit on expenses are food costs. In the el Restaurante survey, 71 percent of respondents said their food costs have jumped this year, and a paltry 3 percent said they dropped.
Leading the food cost crush was a key Mexican restaurant commodity, avocados. Avocados have taken a serious hit this year due to growing problems in California. This year was an “off” year for California growers (avocados typically bear more fruit every other year), but that was exacerbated by drought conditions last summer. Mexico tried to pick up the slack, but could not fully compensate. In July, Hass avocado prices were 129 percent higher than last year at that time, according to data from the U.S. Department of Agriculture.
“Our avocados are up 123 percent compared to last year,” Villatoro confirms.
But that price pain didn’t end with avocados. Respondents to our surveys said other food prices also jumped.
“Ground beef, cheddar cheese and lettuce are our big three,” Rivas reports. “Ground beef has gone from the $1.89 per pound range to $2.65; cheese from $1.99 to $2.40; and lettuce from under $24 a case to over $40, with quality issues.”
How are restaurants dealing with the food price increases? Those we interviewed all said they are raising menu prices, albeit slightly, rather than skimp on quality.
“We never sacrifice quality,” affirms Counter of Matt's El Rancho Restaurant. “If we have to raise menu prices, we raise menu prices.”
Rivas says as much: “We raise prices occasionally in small amounts to help cover these costs, but prices have to be affordable for the customers.”
Overall, Satisfaction
Despite the rising prices, the vast majority of respondents to the el Restaurante survey are happy with business so far in 2019. They like to hear the cash register ringing, even if a few more of those dollars end up going back out the door to pay bills.
“Our business continues to be strong,” says Gloria Reyna, co-owner of Matt's El Rancho Restaurant. “We have been in business for 67 years. We have four generations of families eating with us and many come several times a week. We treat all of our employees with respect and consider them our family. We take pride in everything we do, starting from the top, and have found that working as a team has many rewards!”
Sidebar: What are Mexican Restaurant Owners Worried About?
An open-ended question in the el Restaurante survey asked respondents what they are concerned about at the moment. Here are some representative comments:
La tendencia de los clientes para ordenar por delivery y los altos costos de esta opcion. (The trend of our customers to order via delivery, and the high costs of that option.)
EL RACISMO
La gente está asustada por las redadas que anuncian tanto. (People are afraid of the raids that have been so frequently announced.)
Keeping the good staff members happy enough to stay and to weather it through all the slow days.
Keeping prices appealing to our customers and paying equitable salaries to our employees and still making a profit.
The NAFTA. How will the prices & produce coming from Mexico be this winter. Winter is our slowest day-to-day.
2020 President Election
Cost continually rise against us causing menus to be adjusted. Guests do not like that our prices have gone up but unfortunately we are battling on all fronts.
Keeping people excited to continue to come.
Balancing the rising costs of doing business, tight labor market, and maintaining our concept’s commitment to offering fresh handmade product at a value to our guests.