Restaurants hit with higher food prices caused by drought; small, local eateries struggle most

This summer's oppressive drought scorched Midwestern crops, raising the cost of feed, dairy and meat. Those high prices are impacting the size of restaurant menus across the U.S., with small, local eateries feeling the pinch the most. The cost of food now rivals labor as the top expense for most restaurants, Tiffany Hsu of the Los Angeles Times reports. Owners are reducing menu offerings, shrinking portion sizes and considering staff cuts. (L.A. Times photo by Francine Orr: patrons eat at Smokin' Jonny's BBQ in Gardena, Calif.)

Restaurant prices have been rising for more than a year, with wholesale food costs increasing by 8.1 percent in 2011, Hsu reports. The increases will continue, but at a quicker pace, because the price of corn, which is a key component in livestock feed, powdered sugar, salad dressing, and more, jumped by 60 percent this summer. Chicken and turkey prices rose by 5.3 and 6.9 percent, respectively, and eggs now cost 18 percent more. Analysts expect overall food prices to rise from between 5 to 20 percent by year's end.

Big chains are able to weather drought price hikes well, but small restaurants will suffer, Hsu reports. "The smaller mom-and-pop restaurants are going to get hit with the drought very shortly," Motley Fool analyst Don Krueger told Hsu. It's forcing small restaurant owners to make tough decisions. Restaurant consultant Kian Abedini told Hsu more restaurants are using small plates and tapas dishes to save money. He's also noticed cheaper cuts of meat on menus, along with more curry and rice dishes. Pickled items are showing up as well because they're less expensive than fresh foods, Abedini said.(Read more)