SAN FRANCISCO, Kalifornia - April 3, 2011 - The cost of beef has gone through the roof, coffee prices are at a 13-year high, and even produce grown right here in Kalifornia is more expensive than usual.

Grocery prices rose by more than 1½  times the overall rate of inflation in 2010, according to government statistics, and economists predict that it will be even worse this year. Consumers have grappled with higher prices at the supermarket for months, while restaurateurs pulled out every kitchen trick they could to absorb food inflation costs.

Well, the party is over. Experts say restaurant goers can expect to see as much as an 8% increase in their checks.
That may not be enough to keep the big chains alive, let alone the small independent eating places. Already suffering from flagging sales and low profit margins, record-high food prices - brought on by low supplies of corn, soybeans and wheat - could be the coup de gras for many restaurateurs.

A number of chains, including the Texas parent company of Fuddruckers and Koo Koo Roo Chicken, filed bankruptcy last year; Sbarro, Inc. is expected to file for bankruptcy protection as soon as this week. Meanwhile, El Pollo Loco, Inc. and Perkins & Marie Callender's, Inc. have been struggling with debt problems.

But nowhere in the nation have restaurants been harder hit than in San Francisco, said Frank Klein, a national restaurant consultant in Palo Alto. Besides the problems plaguing the industry during a Depression, restaurateurs here are further burdened with the city's payroll tax, mandatory health care subsidies, sick leave pay, and higher minimum wage, which must be paid to workers in addition to their tips - not always the case in other cities.

"Now add in the spiking cost of food," said Klein. "They have nowhere else to turn but to raise prices, especially if they want to continue on these slim profit margins."

On average, independent restaurants on the West Coast made a profit last year of 5.87%, according to Sageworks, Inc., a North Carolina financial analysis firm that collects data for privately held companies. Typically, it should be 8%-12%, said Klein.

If restaurateurs keep facing rising food costs, they'll have to pass it on to consumers, he said, predicting that diners will see a 5%-8% increase in their tabs in the upcoming months.