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Rising Prices Take a Bite Out of Budgets in Oregon

July 29, 2008

By Damian Mann, Mail Tribune, Medford, Ore.

Jul. 27–Consumers may need to get creative in meeting their families’ budgets as food costs — particularly staples such as bread, eggs and milk — continue to rise over the next two years.

The U.S. Department of Agriculture predicts food prices will increase 4.5 percent to 5.5 percent this year and another 4 percent to 5 percent in 2009. Those increases come on the heels of a 4 percent increase last year.

Some staples have jumped as much as 60 percent over the past five years. A dozen eggs, for example, cost an average $1.20 in 2003 but are $1.92 today. The USDA predicts eggs prices will go up another 13.5 to 14.5 percent before the year is out.

Cereals and bakery products could cost 9 percent or 10 percent more this year following a 4-percent increase in 2007.

While high fuel prices drive the rising costs of food, electricity has increased by one-third over the past five years and natural gas by more than 50 percent.

Galloping inflation puts a bind on not only families, but the butcher, the baker and every other business touched by what most folks consider a recession.

“Our economy is a true mess right now,” said Jerry Evans, owner of the Jacksonville Inn.

Business at the fine-dining restaurant is off by 5 percent this year, and Evans struggles to avoid passing on price hikes for his raw materials to his customers.

Evans likes to exercise in the morning, but lately his business won’t let him. “When I get up in the morning, I come in here and I try to get my hands around controlling costs,” he said.

Reducing portions is one option he’s considered. He’s also hired a buyer to help him look for the best deals on food to avoid raising prices.

But with Dungeness crab selling at $20 a pound, Evans said the restaurant may have to change what it can offer customers while still trying to maintain its emphasis on local foods.

“There may be some things we can’t afford to sell right now,” he said.

Hotel occupancy at the inn is also off by about 5 percent. The cottages have remained full — demonstrating that affluent families can still afford them — but regular rooms have seen a drop in occupancy as the middle class finds itself squeezed, Evans said.

Evans believes there are so many problems with the U.S. economy that things won’t improve for years to come.

“These are things I’ve never dealt with in 32 years in this industry,” he said.

One bright note for Evans was having the best June he’s ever had. “It’s a home run in this economy,” he said. His enthusiasm is tempered, however, by how much the cost of doing business has eaten away at his bottom line.

Geppetto’s Restaurant, an institution in Ashland for the past 30 years, has seen a downturn in business as owners Ron Roth and Kathleen McMichael change the way they do business to avoid raising prices.

“I’m guessing that we’re probably down about 15 percent,” said Roth.

To avoid paying a premium for delivery of non-perishables, Roth said he makes a trip to Medford every two weeks to load up at Cash & Carry. The bill costs him about $400 to $500 rather than the $500 to $600 he spent for the delivery.

He’s also trying to bring in more produce from his farm and will have fresh eggplants in about two weeks for the restaurant’s famous eggplant burgers.

McMichael makes a run to Costco once a month to get office supplies and for maple syrup.

Roth and McMichael have found themselves working in the restaurant more.

“I call it more apron time,” said Roth. “My wife is sitting here in her apron making special desserts.”

On Tuesday and Wednesday nights, it has been particularly slow, not just in his restaurant but throughout town.

“When I drive down the boulevard, nobody else is in the other restaurants either,” he said.

Geppetto’s waitress Summer Watkins said customers have cut back on tips and are ordering less-expensive meals, sometimes drinking water as their only beverage as a way to cut down on the bill.

She used to average about 20 percent to 25 percent of sales for tips, but that has dropped to 10 percent to 12 percent.

“That’s my lifeline,” said the 27-year-old single mother with a 5-year-old daughter. “Servers just make minimum wage.”

By the end of the month, Watkins said she struggles to pay for day care, groceries and other bills, hoping she can muster a couple of good days’ worth of tips.

On Friday, Watkins had a good day. “Last weekend was awful,” she said. “We have never been so slow.”

While she strives to maintain the same level of service, she said she has noticed a change in many customers.

“People’s attitudes have changed,” she said. “People aren’t as happy as they used to be.”

At Medford’s popular bakery, Great Harvest Bread Co., owners Lisa Allen and her husband, Dan, tried to avoid raising prices.

When a 50-pound bag of wheat flour increased from $19 to $23 in January, they resolved to continue selling a loaf of honey whole wheat bread at $4.10.

But then, Allen said, eggs, seeds, whole grains and honey shot up.

As a result, she reluctantly raised the price of a loaf of bread to $4.40, even though she calculated her increased costs at 70 cents.

“Our margins got a lot lower,” she said. “We hate to have that large of a jump, so it just means you make less money.”

Allen said her customers seem to understand, and she hasn’t noticed any decrease in business. “Our customers want to eat well,” she said.

Allen is worried about more increases in the cost of ingredients for her breads and other baked goods.

“I hope they come down, but it doesn’t seem like they ever do,” she said.

At Shop ‘N’ Kart in Ashland, increases in staples such as milk, eggs and bread have been tough to swallow.

“We’ve reduced our margins to the quick,” said store manager Eric Chaddock. “Most of the big retailers ate the loss.”

Chaddock said part of the price hikes was passed on to the consumer, but stores absorbed much of it to keep customers happy.

The cost of these staples is a particularly sensitive item for many shoppers, he said. “They say, ‘We won’t shop here anymore because of the price of these things,’ ” he said.

Even though groceries cost more, Chaddock said he hasn’t seen any less interest in organic products, which are a major emphasis in his store.

“They are actually doing better during these rough economic times,” he said. Conventional products have risen in price more dramatically than organics, he said.

Overall, prices of food at his store have increased by less than 4 percent over last year. Chaddock said he hasn’t seen any decline in business, but expects to continue to do well as shoppers cut back on eating out.

Supermarkets such as Food 4 Less in Medford strive to maintain low prices, but Vice President Steve Olsrud said the cost of food has just been going up.

Eggs stayed high all the way through June, though they dipped a bit over the past few weeks, he said. “Milk’s also been high,” he said.

Delivery trucks have been charging a fuel surcharge over the past year, which is now an added cost.

And the increased price of food has been noticed by customers.

“They’re complaining,” he said.

FOOD PRICES: Noticed your grocery bill creeping up every year? Average prices in U.S. cities from June 2003 to June 2008:

–Whole milk, per gal.

2003: $2.68

2008: $3.77

Up 41 percent

–White bread, per lb.

2003: 96¢

2008: $1.37

Up 43 percent

–Flour, per lb.

2003: 33¢

2008: 53¢

Up 60 percent

–Ground beef, per lb.

2003: $1.93

2008: $2.27

Up 18 percent

–Chicken, per lb.

2003: $1.03

2008: $1.18

Up 15 percent

–Dozen eggs

2003: $1.20

2008: $1.92

Up 60 percent

–Bananas, per lb.

2003: 52¢

2008: 63¢

Up 21 percent

–Coffee, per lb.

2003: $2.93

2008: $3.41

Up 16 percent

Source: Bureau of Labor Statistics (www.bls.gov/data/)

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Copyright (c) 2008, Mail Tribune, Medford, Ore.

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