Customers crowd into Mad Dog & Beans Mexican Cantina in New York City
Editor's Note: This is el Restaurante’s eighth annual Independent Mexican Restaurant Report. It draws on a reader survey in October that was answered by 45 readers, and follow-up interviews with four of them. Additional data came from two surveys conducted by PopMenu.
By Ed Avis
First, the good news: 34 percent of respondents to the el Restaurante survey say that sales are better than before COVID and another 23 percent say they’re about the same as before COVID. Now the bad news: Every one of the Mexican restaurant owners who completed the survey said food costs are up this year, and 78 percent said finding employees is harder than normal.
That’s precisely the situation at Acapulco Mexican Restaurants, an eight-location operation in Minnesota.
“Sales are a little better than pre-COVID, and we have more takeout,” reports Sam Leon, chief operating officer of the multi-unit. “But the third-party delivery fees, labor and food keep going up. And honestly, we’re afraid to price ourselves out of a restaurant. Plus we’re not sure about the state of the economy and where we’re going.”
Sales Up
Our survey revealed that not only are sales for most restaurants better now than before COVID, but they also are better so far in 2022 versus 2021. Seventy-three percent of our respondents said sales are up this year, including 5 percent who said sales have doubled since last year and another 14 percent who report sales up between 50 and 100 percent. Only 18 percent said that sales are down this year compared to last year.
Those figures are backed up by a survey of consumers conducted by restaurant technology provider PopMenu. Their survey of 1,000 consumers found that 58 percent are eating out more often this year than last year. That survey also found that the top half of consumers spend an average of $125 per week on restaurant food.
Despite those solid numbers, there is some apprehension among Mexican restaurant owners. For example, Nick Yager, co-owner with his wife, Maria Limon, of Gusanoz Mexican Restaurant in Lebanon, New Hampshire, says his restaurant is on track to exceed sales from last year and he’s well above pre-COVID times…but he feels certain circumstances are holding back even greater sales.
“My personal opinion is that the labor market has caused us to limit the amount of sales we can do,” Yager says. “Often we turn off online ordering and we hadn’t been seeking any catering work until just last week, because of staffing.”
Aaron and Kelly Metras own Salena’s Mexican Restaurant in Rochester, New York, and their key challenge is that walk-in traffic is clearly down. The couple, who just opened a new quick-service location – Salena’s Taqueria in Greece, New York – have observed that reservations are up at their Rochester location and service in the dining room has pretty much reached pre-COVID levels, but the bar is painfully slow.
“We used to have a very bustling bar scene, especially on Friday and Saturday nights, where there would often be a standing-room-only crowd,” Aaron Metras says. “That is gone. Now if people are not sitting at a high top table they go out into the hall to wait and less people are hanging out at the bar. The later crowds have also all but disappeared. We now close at 10 on Friday and Saturday instead of 11, because no one is coming in late.”
Food Costs Are Killing Us
Rising sales doesn’t necessarily mean rising profits. Our survey showed that everyone is facing higher food costs, which clearly is eating into the bottom line.
For example, Yager says his food cost typically has been 19 to 21 pecent of sales, but last year it rose to 25 percent and is trending the same this year. Costs of proteins, dairy and many staples have jumped 20 to 40 percent, he reports.
“We haven’t changed our recipes because food quality and consistency is the most important aspect of our food,” he says when asked how he’s dealing with the increased costs. “But we have changed our menu pricing, though we’re cautious not to outpace our regular customers.”
The situation is the same at Mad Dog & Beans Mexican Cantina in New York City, says Vince Deuschel, director of operations for JTP Restaurants, the parent company of Mad Dog.
“All our food and beverage prices have gone up,” Deuschel says. “Some have gone up directly, and some have had price increases in kind – like gas surcharges, delivery fees, or increased minimum deliveries that might force us to abandon other less expesnive vendors.”
Deuschel says they’ve fought the prices by changing their portion sizes and increasing menu prices about 10 percent. He says they need to do another increase, but they’re hesitant to do that because guests, naturally, don’t appreciate the higher prices.
Metras says he has increased some prices – he doubled the price of wings for a while – but also worries about losing customers.
“We have tried being more strategic with our menu and streamline ingredients, but I don't think we have compensated for the increases, especially when you factor in labor,” Metras says. “We are hoping that the addition of our new location will help us create an economy of scale on some prep items and we will be able to reduce costs.”
Leon of Acapulco Mexican Restaurants says they are planning a 10 percent menu increase, but he feels customers won’t mind paying a bit more if the quantity and quality stays the same.
“We feel customers would be apt to pay more as long as you leave everything the same, like the free chips and salsa that we do,” he says. “I think they would have a fit if we took that away.”
el Restaurante readers are in good company when they raise prices. According to PopMenu, which also surveyed 415 restaurant owners across the United States, 93 percent of them have raised or plan to raise prices to help them deal with spiking food and labor costs.
An issue that is closely related to food prices is food availability. In many cases, products restaurants need simply are not readily available.
“So even if the price hasn’t gone up, we may not be able to get the product,” Metras says. “That has been a huge issue with beer and tequila, especially because we are a smaller market.”
Labor, Ouch!
Finding employees is harder than it usually is, according to 78 percent of respondents to the el Restaurante survey. And the consequences of losing staff are stiff, notes Metras, who lost most of his long-time kitchen staff during COVID.
“We sometimes forget to factor in the cost of mistakes made while training and getting new staff up to speed,” he explains. “We were able to stable out staff-wise last summer, but labor is still probably our toughest issue.”
To attract and retain employees, 87 percent of them have increased pay and 64 percent have made their work schedules more flexible, according to our survey.
Are those measures working? Apparently not much.
“Increasing staff pay has not reduced turnover or increased performance,” Deuschel says. “We had to do so to stop turnover from getting worse. Salaried and hourly employees feel they have the upper hand due to the labor shortage.”
In some cases, the pay increases restaurant owners are offering are truly significant. Yager says employees who previously would have made $15 per hour now earn $20 an hour. Some of his servers are making much more – they are pulling in $1,200 to $1,500 per week in tips -- but he still can’t find more of them.
“We track it and show them they’re making $30 to $40 an hour,” he says. “It’s hard work, but it does pay.”
One staffing idea that has worked for Metras has been to give kitchen staff a 4-day workweek. They work 9.5 hours and get a half-hour paid lunch. Staff appreciate that arrangement, he says.
And, naturally, in some cases increasing pay has worked for el Restaurante readers. Leon says he has increased pay significantly for their 280 employees, and the effect of that varies.
“The new employees tend to chase the dollar, but the older ones have been loyal and we’ve been blessed by that,” he says. “I think they’re comfortable where they’re at, and as long as they can sustain a decent income, I think they’ll stay.”
The bottom line is that Mexican restaurants are enjoying a solid year, for the most part, but not without challenges. If inflation eases and the labor market loosens, good things are ahead.
Ed Avis is the publisher of el Restaurante.