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Surviving Hard Times: Economic Indicator for Las Vegas Restaurateurs
is Rise in Beverage Prices, in New York it's When Shoes Sell

By Heidi Knapp Rinella, Las Vegas Review-JournalMcClatchy-Tribune Regional News

July 28, 2010--If you've noticed that restaurants and bars have been raising beverage prices during the past few years while the economy has steadfastly headed downward, you're not alone.

Why are you paying $3 for a cup of coffee when the price of the beans is 25 cents or so? It's a simple matter of economics, said Valentina Columbo, a beverage instructor at Le Cordon Bleu College of Culinary Arts Las Vegas.

"Some things will bear a higher markup," Columbo said. The markups on beverages, she noted, often are based on the competition.

Mohsen Azizsoltani agrees. He's a lecturer in the food and beverage department of the Harrah College of Hotel Administration at the University of Nevada, Las Vegas.

"Coffee used to be $1," Azizsoltani said. "The cost of coffee is set by the large companies such as Starbucks."

With a corner coffee shop selling its wares for upward of $6 a cup, the consumer feels it less when a restaurant goes with a higher markup.

"You can see that marked up 500 (percent), 600 percent," Columbo said. "We can't do that same markup with steak," because the price would be in the hundreds of dollars, which would scare away the most determined carnivore.

"Beverage service is one of those things that no one looks at," said Giovanni Mauro, owner of Nora's Wine Bar & Osteria. If the price of a beverage is raised from $2.50 to $2.75, he said, "everybody goes, 'It's a quarter.' But if the same thing happens with food, everybody says, 'Prices are going up.' "

At the same time, he said, restaurants are struggling to hang on to the customers who haven't had to cut dining-out completely from their budgets and try to find new ones, without appearing to raise their prices.

"Everybody wants to undercut each other because everybody's so scared of what's going on in the economy," he said. "I think it's unfortunate that we have to play those numbers games. I try to be as honest as possible, but sometimes it kicks me in the butt."

Mauro said he hasn't raised his beverage prices, instead going with incremental increases in food prices and stressing quality.

Bob Ansara, owner of Ricardo's Restaurant, said he hasn't raised his beverage prices, either.

"We have not had a price increase in over two years, for obvious reasons," Ansara said. "I don't think my customer base has the appetite for any increase in price."

But he thinks they might notice if he did.

"It depends on who the customer is and when they're spending their money," Ansara noted. "If they come in every Friday night and the Budweiser went from $3.50 to $4, they'd notice. If it's a party of 20 and they're out to celebrate a 50th birthday party, they're probably not going to notice a 3 percent price increase."

Prices in the hospitality industry are influenced by costs of things such as uniforms, rent and glassware as well as the ingredients themselves, Columbo said. And as Mauro noted, most of those costs are going up. Increases are coming in food, transportation, energy and labor, because of periodic state-mandated hikes in the minimum wage.

Columbo said customers have a price-value relationship: "They're willing to part with their hard-earned income if they can put a value on it." And that may go as much to atmosphere as it does the actual cost and quality of the ingredients.

Instead of the old bars, "with a few chairs and a cocktail server," many places, especially in casinos, "have become fancier to create an experience for the guest," Azizsoltani said.

"We're willing to pay $15, $18 for a cocktail in a place that has the ambience," Columbo said. But if, say, a neighborhood bar were to introduce the same markup, "that just drives the price out of the price-value relationship."

Troy Kumalaa, beverage director for Michael Corrigan Restaurants -- which include the Roadrunners, Agave and Vintner Grill -- said he hasn't noticed customers cutting back on beverages because of the recession.

"At the Roadrunners, soda and everything is all-you-can-drink, so people don't mind paying $2," Kumalaa said. "The number one seller at Vintner Grill is still martinis. It's anywhere from $9 to $10 for a martini; we've never seen a decrease in it."

Kumalaa said packages offered by liquor distributors have helped the restaurants hold the line on price increases in that area, and that soft-drink increases have been only $2 to $4 on a 5-gallon bag, which they haven't passed on to customers.

Clark Wolf, a New York-based restaurant consultant with clients in Las Vegas including Mandalay Bay and Paris Las Vegas, said he thinks beverage prices actually have gone down since the recession started (although, as Mauro noted, we're less likely to notice when prices drop).

"They went down in the crash because $18 cocktails just seemed like a bad idea," he said, "so they went down to $14 and $12. The good news is that drinks didn't go down to $3.50."

And if prices seem to be rising now, he said, that's because at least in Las Vegas, "drinks are the first thing to go up. That's a good economic indicator. In New York, we look for shoes to sell."

Wolf said he thinks it's a mistake when a restaurant or bar doesn't offer a range of beverage prices.

"They used to offer well drinks, and then there were society drinks," he said. "You could get a drink for a real number, and then if you wanted something wild and crazy, you could pay extra for that. Too many people are charging a lot for a drink; they're kind of charging a cover charge."

Or they're making up for lower food prices.

"If you go buy a burger for $1, and you have soda and fries and now it's all of a sudden $6.99, they're making money on soda and fries -- it's very simple -- and they're losing money on the burger," Mauro said. "Does anybody realize what kind of meat they'd have to put in there to have a $1 burger?"

As a consumer trying to stretch dining-out dollars, the only alternative is to do what Ansara said he has seen some customers doing, and cutting down on "add-ons" such as appetizers, desserts, sides and second drinks.

"This economy," he said, "has taken a lot of the frosting off the cake."

Contact reporter Heidi Knapp Rinella at hrinella@reviewjournal.com or 702-383-0474.

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Copyright (c) 2010, Las Vegas Review-Journal

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