Restaurants' triple serving of recession

Not only do they have to cope with a drop in business, but fuel surcharges and soaring food costs as well.

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By Steve Hargreaves, CNNMoney.com staff writer

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Jeannie Felts Buckner and her husband, Frank Buckner, own the Hunters Run Pub and Grill in Camden, Ala.
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CAMDEN, Ala.†(CNNMoney.com) -- Jeannie Felts Buckner is caught in a recession triple squeeze.

As owner of the Hunter's Run Pub and Grill in Camden, Ala., she's seen a 30% drop in business recently - a drop she attributes to consumers pulling back in the face of rising gas prices and a looming recession.

But Jeannie's troubles don't end there. As a business in a rural area, most of her food and other supplies are trucked in, and she says the delivery companies have tacked on additional fuel charges over the last few months.

Plus, prices for basic foodstuffs have soared along with other commodities - in just one year the cost of flour has nearly doubled.

"I'm in trouble," she said from behind the bar of her rustic tavern, where exposed wooden beams and wall-mounted animal trophies give it the feel of a hunting lodge. "I've started my suck-up mode as of yesterday."

So as Buckner deals with runaway fuel and food inflation - and plummeting sales - she says she may have to lay people off, fueling the vicious cycle of recession here.

Two of her employees at the restaurant may have to go, as well as the babysitter who cares for her two kids, ages 9 and 10.

"You know, taking your children to work with you is not normal, but it's survival," she said.

It's getting tough all over

Surging food prices - driven by bigger diets in the booming economies of the developing world, the increasing use of corn-based ethanol in the U.S., and investor interest in commodities as an asset class in general, among other things - are largely to blame.

In addition to flour prices doubling, eggs are up 70% over the last year as well, and cheese has jumped 25%, according to Hudson Riehle, a researcher at the National Restaurant Association.

As a result, wholesale food prices rose over 7% in 2007, the fastest rise in 20 years. But stiff competition meant restaurants were able to raise prices by less than 4 percent, said Riehle.

"This is a challenging period for the restaurant industry overall," he said.

Nonetheless, Riehle said February was still one of the strongest months ever for restaurant sales. He also noted that in the recession of 2001, restaurants were one of the few business that didn't see sales fall from the year before, despite going out to eat being named as one of the first things people say they'll cut from overstretched budgets.

"It's important to pay attention to action, not words," he said. "Customers are pulling back somewhat, but they are loathe to [stop eating out altogether]."

Tell that to Matt Flora, a struggling restaurateur.

Since quitting the food biz in Montgomery, Ala., four years ago, Flora has run the Delmar steak and seafood restaurant with his wife, Charlie, in Thomasville.

Situated on a busy two-lane highway about halfway between Birmingham and Mobile, the Delmar gets a lot of business from people traveling down to the Gulf.

But as gas prices rise and jobs get scarcer, people travel less. Although the regulars still come in, Flora said he's lost 20% to 25% of his traveling customers.

Add that drop in business to fish prices that Flora said surged 20% in two weeks - largely due to fuel costs - and things start to look grim.

"When people cut back, going out to eat is always the first one to go," he said, sitting at a booth in his family-style restaurant. "We'll raise our prices, but it's getting more and more difficult every day." To top of page

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