Surviving Food Inflation — How Colorado Restaurants Adapt to Rising Costs and Labor Challenges

Like countless other industries, the restaurant industry has been completely redefined by the pandemic. Restaurant owners felt optimistic about the post-COVID world but were immediately presented with a continued headline problem — food inflation.

READ: 5 Ways Small Business Owners in Colorado Can Survive Inflation 

According to new data released from the U.S. Bureau of Labor Statistics, prices for food away from home, which include restaurants, vending machines, schools and other foodservice facilities, increased 8.4% year over year in the first quarter of 2023.  

Same-store sales began decreasing in July 2022 after 17 months of continuous increases, according to the National Restaurant Association. Many operators also reported lower customer traffic beginning in June, which was when gas prices hit record highs. 

Other supply chain-related events, which spanned from restaurant equipment (creating issues for restaurant development and timing) to the Avian flu and eggflation issues, also negatively impacted the industry. 

Where are restaurants now? 

Inflation has had a far-reaching impact on the restaurant industry — affecting everything from the cost of materials to wages. 

Although average food prices had decreased slightly by the end of summer 2022, they increased 16.3% from July 2021 to 2022, according to Bank of America. Locally, according to the Colorado Restaurant Association, food prices increased more than 11% in 2022, the most in four decades. Many critical food items like eggs, cheese and butter have seen even more dramatic increases, leaving restaurants no choice but to increase menu prices in response.  

READ: Plant-based Protein is Taking Root in Colorado’s Food Economy

Climate issues like drought, fires and record-setting heat have also limited the availability of crops, exacerbating the food inflation problem. Food brands have found themselves short on vital food products like potatoes and other grains. 

One especially stressful part of the equation for restaurant owners today is how much food inflation passes on to customers. Restaurants need to remain competitive while still retaining a profit. If your restaurant is taking a 10% menu price increase and competitors are only taking 5%, you’re out on a limb.  

In addition to struggling to combat increased food costs, restaurants are also navigating increased labor costs. Although restaurant industry employment has rebounded, employment is still 5% below pre-pandemic levels, according to the Bureau of Labor Statistics. Two-thirds of operators said their restaurants still don’t have enough employees to support higher customer demand. In Colorado, 8 out of 10 local restaurants are struggling to hire enough staff even as industry wages have risen an average of 20%, according to the Colorado Restaurant Association. 

Together, food and labor costs account for about two-thirds of every dollar of a typical restaurant’s sales, according to the National Restaurant Association, which is why 2022 has proved so challenging for restaurant operators and their bottom lines.  

Restaurants have increased wages not only to attract workers but also to compete with other employers, particularly retail outlets. When major employers like Target, Amazon and CVS move to a $15 wage, it doesn’t matter what the federal minimum wage is. Restaurants must compete. 

READ: Rising Food Costs Create Unique Challenges for Hunger-Focused Agencies

What’s next? 

Although the outlook is uncertain with the threat of a possible recession on the horizon, indicators are displaying that any recession will likely be modest and manageable. Restaurants should take advantage of the lessons they have learned in the past few years and find hope in the signs that the worst is behind us. 

Grocery store costs increased at a higher rate than restaurant costs in the summer of 2022. Now, that widening price gap makes restaurant meals a better deal for many consumers. With about half (46%) of adults reporting that they are not eating at restaurants as often as they would like, the higher cost of groceries could drive customers back to restaurants. 

What’s more, chicken prices are expected to decrease in 2023 due to a significant improvement in production, although the impact of a lengthy war in Ukraine still hovers over future supplies and prices. And the labor situation seems to be stabilizing as well, as stimulus payments have ended, and people are reentering the workforce. Job openings peaked in March but tumbled by 1.1 million by August. 

The key components for restaurant owners are employees and partners, making labor and training significant factors for restaurants. The labor market continues to be tight but there are signs of hope. Restaurants have learned to operate with fewer people and rely more on technology which is necessary as the labor market continues to tighten. Unemployment appears to be on the rise which allows for more workers to be available to work in restaurants, serving as line cooks, servers and hosts, among a number of other services. 

READ: Veteran Unemployment: Untapped Workplace Resources

Restaurants must learn how to quickly pivot, whether that means embracing innovation or improving their services by being more flexible and adaptable. Restaurants must also learn to operate with fewer employees and rely more on technology.   

While restaurants have faced countless challenges and rising food inflation in the past few years, the setbacks have only proven how resilient the industry is. Those that made it through 2022 relatively unscathed should be proud. The future seems promising for brands that can weather these storms and welcome eager consumers back to their tables.


Cristin O’Hara headshotCristin O’Hara is the Managing Director and Head of Restaurant Group at Bank of America.












Ty M. Aslin headshot


Ty M. Aslin is the Colorado Market Executive for Business Banking at Bank of America 



Casa Bonita: Life imitates Comedy Central

Sos Illustration

The announcement by “South Park” creators Matt Stone and Trey Parker that they’re buying the iconic Casa Bonita restaurant–sometimes referenced on their show–was some much-needed positive news this summer for an industry that has been especially hard-hit during the pandemic.

A Colorado Restaurant Association survey of 195 operators conducted July 8 through August 9 was decidedly less cheerful.

Among the findings:

  • More than 25% of restaurants are considering permanent closure in the face of significant debt, increased overhead and a severe shortage of labor.
  • More than 67% of restaurants say they have accrued new, pandemic-related debt and owe an average of more than $180,000.
  • Since March 2020, restaurants report increasing wages by an average of 19%; more than 31% of restaurants have increased wages by 21 to 30%.
  • More than 23% of restaurants have added new benefits to their compensation packages.

The high-profile Casa Bonita purchase amid such industry challenges brings to mind a quip that’s almost “South Park”-worthy: How do you make $1 million in the restaurant business? Start with $2 million …

Adaptability key for restaurants amid COVID-19 obstacles

This year has taught us all a little something about survival. But perhaps no one has had to learn this more than those in the restaurant industry, which has experienced obstacle after obstacle since the coronavirus pandemic hit U.S. soil in early-March.

With razor-thin margins in the best of times —alongside the tedious balance of rent or lease payments, payroll, food costs and more—adaptability and innovation have long been core tenants of a successful restaurateur and dining concept.

“COVID-19 has been the most challenging crisis the restaurant industry has faced in living memory,” says Sonia Riggs, president and CEO of the Colorado Restaurant Association. “The shutdown was like a free fall — we believe the Colorado restaurant industry lost nearly $1 billion in revenue in April alone.”

Not only did the initial shutdown pose its obvious challenges, but the reopening has been a maze of red tape and ongoing capacity restrictions. And, according to Riggs, the only substantial relief the industry received — the Small Business Administration’s PPP loans—came at a time when restaurants were closed for business and had nothing for staff to do; which is particularly bad timing when you consider that loan forgiveness hinges on the money being used for payroll.

With crisis after crisis, innovation was certainly rewarded for those able to adapt to the circumstances.

Take Zeppelin Development. The company, which owns both the The Source market halls, Zeppelin Station and many other multi-use properties in Denver, had a few things working in its favor during the pandemic: its pre-existing focus on indoor-outdoor space; the fact that food hall concepts present a lower overhead and risk for restaurant vendors; and more. This, coupled with its ability to continue to bring new experiences during the pandemic, has allowed the company to maintain optimism about the future.

According to Justin Croft, VP of development at Zeppelin Development, this year has been somewhat affirming for the forward-thinking Zeppelin. As one of the first to bring food halls to Colorado, the company has seen the advantages of the concept play out in a troubling time.

“Margins in that industry have always been so thin and COVID has made that so much more challenging,” he says. “In some ways, we saw the writing on the wall [in 2013 when The Source first opened in RiNo] about having multiple operators attracting and sharing some of the operating costs and customer base; that’s where the market was already headed, and in some ways COVID accelerated that.”

And certainly the company’s access to outdoor dining helped it through the summer months, something Riggs noted as a clear advantage. “Restaurants able to really take advantage of a patio expansion for more seating over the summer have fared better,” she says. “Likewise, those that had significant takeout and delivery operations before COVID-19 certainly weathered the early part of the crisis better.” Those who have been able to grow takeout and delivery operations also found success.

Still, with winter approaching, restaurants that found success in the summer will face a new set of challenges — challenges that those without expanded patio space have been facing all year.

“We are working on creative solutions to making outdoor space usable through the winter, including partnering with the state for a design workshop with the goal of having design professionals create affordable, implementable solutions that keep diners safe and warm on patios throughout the winter,” Riggs says.

These adaptations will require significant investment. Which is why The Restaurant Association is working to secure funding, grants and financial assistance.

For Zeppelin, the winter will be about continuing to accommodate guests and going back to the basics of hospitality. “People want to be comfortable, they want to have delicious food, they want to have nice things to drink and celebrate nice occasions; and to the degree that they can be in a big space and feel safe, that’s what we’re here to provide,” Croft says.

As for the long-term future of restaurants in Colorado? Only time will tell.

“It’s too hard to say yet what the lasting impact of this will be on restaurants. We’re still in survival mode,” Riggs says. “We do anticipate a long recovery and will continue to advocate for relief in all forms at all levels of government.”

The future of restaurants is clouded by restrictions, fears

Along with travel-tourism, no Colorado industry has suffered more as a result of COVID-19 restrictions than restaurants.

As of 2019, there were more than 12,500 eating and drinking establishments across the state. They generated more than $14.5 billion in revenue and employed 294,000 – nearly 10% of the state’s workforce. Eating and drinking establishments in the Denver metro area (which includes Boulder) employed 140,000 people and generated $5.9 billion in revenue in 2019.

Sonia Riggs, CEO of the Colorado Restaurant Association, shared her insights of the impact of COVID-19 with ColoradoBiz, addressing the questions below on April 16.

ColoradoBiz: How many of Colorado’s restaurants are expected to survive this month-long (and probably extending to at least 1 ½ months) economic lockdown?

Sonia Riggs: Our surveys indicate 3% have already closed permanently, and 6% are considering closing permanently by the end of April. If the dining room closure continues into May, 12% would consider permanently closing if it extends to mid-May, and 22% would consider permanently closing if it extends to the end of May. So we’ve already lost about 375 eating and drinking establishments across the state – and we could lose as many as 2,500.

CB: Do you have figures for the number of restaurant workers who have been laid off?

SR: According to data from our March survey, at least 150,000 of 235,000 restaurant workers were laid off or furloughed. [Note that the number of restaurant workers is different from employment of the whole eating and drinking establishment industry.]

CB: What are restaurants doing to survive until some semblance of normal dining resumes?

SR: Many are trying to take advantage of federal government assistance like the Paycheck Protection Program and Economic Injury Disaster Loans (EIDL). We’ve seen some success in securing PPP loans, but the program is structured poorly for restaurants, and the money ran out yesterday (April 15). We’ve seen almost no success with the EIDL program, and we’ve heard that funding has run dry, too. Cash relief is critical to this industry’s survival, so we need to see more relief – and quickly – from the federal government. From a business-model perspective, those that remained open have switched to to-go and delivery models, and we’ve seen a lot of creativity in offerings, including family meals, feasts, special pricing and special items.

Most are also taking advantage of the allowances for alcohol to-go and delivery and selling bulk goods. We’ve seen restaurants set up markets, offer a roll of toilet paper with each order, sell hand-made bulk pastas, bottle cocktails and offer rare wines in flights alongside tasting notes, for just a few examples.  And 53% have temporarily closed their doors – which is also a survival mechanism.

CB: Besides the statewide restrictions on social gathering, are there other challenges unique to the restaurant industry, such as a typically high turnover rate?

SR: Other challenges for restaurants include limited delivery schedules from suppliers, as they have had to cut staffs too. Overall, though, cash is the No. 1 problem restaurants are facing now: How do you pay your rent, taxes and your bills when you have far less money flowing in.

CB: Are any restaurants or related service providers prospering as a result of swift pivoting to a new business model or emphasis? I read that third-party delivery services may not be as beneficial to restaurants as one would assume. Any thoughts on that?

SR: Ninety-eight percent of our survey respondents say their business is down compared with last year – so restaurants are almost universally suffering. But restaurants that already had a robust delivery business have found a bit of a softer landing. Third-party delivery services often charge restaurants high fees, which eats into meager revenue. It’d be better if patrons called the restaurant directly to order; many have also shifted employees to delivery-driver roles and are running delivery themselves. We’ve heard tangentially that some ghost kitchens, which prepare food specifically for delivery, are prospering, but we don’t have our own data on that.

CB: In a related question, are any restaurant models – such as drive-through-oriented models – actually seeing an uptick in business in this COVID-19 environment? And are there restaurant models for which these COVID-19 restrictions are particularly damaging?

SR: We don’t have numbers specifically on drive-through, but we are hearing that overall quick service is down about 25%. Full-service, independent restaurants seem to be suffering the most (we are hearing upwards of a 90% decrease in revenue for those that have remained open), because they have the tightest margins even in flush times. They tend to have large staffs, and they didn’t do much takeout and delivery before this crisis, so they may be having a difficult time transitioning. Geographically, Colorado’s resort and mountain communities seem to be suffering the most because they rely heavily on tourism, and tourism has completely dried up.

CB: It would seem the absence of baseball at Coors Field – which normally provides 81 days or nights of captive spenders each season – would be particularly devastating. What impact is a dormant Coors Field having – and could continue to have – on restaurants and bars in downtown Denver in terms of laid-off employees, lost revenues and/or shuttered dining and drinking establishments?

SR: Undoubtedly restaurants and bars that see upticks in business around events – baseball, theater, concerts, etc. – are taking a big hit. But it’s not just events – if you look at monthly revenue in this industry, it typically starts to rise in April and May, and then really picks up into summer. Patios add capacity, tourism goes up and people are out. The most extreme example of this may be in the mountains, where summer and winter busy seasons make up for shoulder seasons, when many restaurants actually close because it’s so slow. If you don’t have the busy season to make up that revenue, it makes it much harder to weather the shoulder. Restaurants in all markets are experiencing some version of that: missing out on busy-season revenues that makes it that much harder to survive lulls. Don’t forget also that the state shutdown came just before St. Patrick’s Day, which is normally a significant revenue stream for many restaurants.

CB: To the extent that it’s possible, what does the Colorado Restaurant Association envision in terms of a recovery for Colorado’s restaurants? Can restaurants turn a profit with a 6-foot social distancing requirement?

SR: We’re hoping to see clear guidelines from the state around reopening protocols, alongside assurance that these guidelines will keep employees and diners safe. We’re hearing a variety of possibilities, including maintaining social distancing and implementing additional deep cleaning or sanitation standards. It will be important for the government to offer high-level guidelines yet be flexible in the way that restaurants comply with specific regulations, as restaurants vary widely in size, restaurant and kitchen layout, menu offerings and more. We’re also hoping for as much notice as possible before the state lifts the stay-at-home order, because restaurants will need time to implement new policies with their staffs as well as place orders for supplies. The restaurant business model relies on being able to operate at full-capacity – so no, most will not be able to turn a profit with social distancing requirements in place. Many will not reopen at all as long as reduced capacities are in place. This is why it’s going to be critical for restaurants to continue to receive stimulus during reopening. We are advocating at the national level to make that happen. We have also been sharing suggestions with local and state officials on what they should consider to help keep restaurants viable as this process unfolds, such as continuing the relaxed alcohol take-out and delivery laws.

This article is part of the feature, State of Disruption, is which ColoradoBiz explores the impacts of COVID-19 on the state’s industries. The articles feature insight from industry leaders into what businesses throughout the state are up against, as new coronavirus numbers and strategies for reopening the economy are adjusted and reported daily.
Read more about the impact of  COVID-19, and see what the industry experts are doing and saying in the following industries:
Agriculture | Real Estate | Travel & Tourism