Customers aren’t the only ones daunted by the current menu prices of Rustic Inn, the landmark crab house in Fort Lauderdale, Fla.
Before inflation soared to historic levels, the high-volume one-off charged $75 for an order of Alaskan king crab legs, explained Michael Weinstein, the 50-year restaurant veteran who leads the restaurant’s multiconcept parent company, Ark Restaurants. Even at that price, the dish was a strong attraction, drawing 1 out of 4 guests, Weinstein told investors Tuesday.
About $37.50 of that was pre-labor profit, making Rustic one of the restaurant jewels in Ark’s portfolio, Weinstein continued.
Today, that same 2 pounds of crab legs cost the restaurant close to $115. The restaurant had to raise the price to $135 to cover the 85% food cost.
People still order the item, Weinstein said, but now it’s usually split between two people. Not coincidentally, business at the Rustic was off by more than 20% during the fourth quarter ended Oct. 1.
“Our customers can afford it,” Weinstein told financial analysts during a discussion of Ark’s Q4 results. But the perception of the restaurant has changed. People are now treating the place and its signature dish as options for a special occasion.
Weinstein recounted the situation to illustrate why, after 50 years in the restaurant business, he finds current pricing “unfathomable.” He readily acknowledged that the unprecedented circumstances have left Ark uncertain about how much of the surge in food costs can be passed along.
“Even though they may be rationalized by the cost, it doesn't mean that the customers are going to look at them and feel comfortable paying them,” he said.
Over the summer, when other multi-unit operators were hiking prices significantly to protect margins, “we were not raising prices aggressively at all,” said Weinstein. “And in many of the restaurants, we just stopped.”
He indicated that he’s less flummoxed and concerned by labor costs for the 33-restaurant operation (17 are full-service, the rest fast-food stations in food courts). Payroll expenses for Q4 jumped $2.8 million over the tally for the same period of fiscal 2021, to $16 million.
That increased outlay was more of a strategic investment than a mere effort to keep up with headcount needs, Weinstein said. He noted that the company had been stung by high turnover because it had been hunting bodies instead of talent. Weinstein instructed his managers to drop that attitude and aim instead for the best people.
“And if we have to pay them more, we're going to have to pay them more. Just get them on board,” he recounted telling the staff.
He expects the emphasis on quality recruitment to lower headcounts in the current fiscal year. “In many cases, we had two people doing the job of one person,” Weinstein said. “We had a lot of overtime.”
Overall, Ark generated a net income for Q4 of $998,000, an 86% decline, on revenues of $46.9 million, up 9.4%.
Weinstein attributed the sharp drop in profits to heightened labor costs and a difficult comparison with Q4 of FY 2021, when Ark recorded rent abatements for the whole fiscal year.
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