Restaurants' COVID-19 surcharges infuriated customers, but experts say dining out is about to get even more expensive

• The cost of running a restaurant is on the rise as owners add new safety measures and food costs skyrocket by 38%.
• As a result, experts say that menu prices are likely to substantially increase as restaurants reopen.
• "Nobody wants to lose customers because of their insensitivity to the fact that the consumer is so stretched," a restaurant-industry investor said. "So they're going to very carefully raise prices — because they're not going to lose money."

Customers should brace for higher menu prices as restaurants reopen across the US.

As restaurants reopen dining rooms, lower-occupancy requirements mean that few will make anything close to pre-pandemic sales. Restaurants need to invest in new safety features, such as masks for workers and plexiglass dividers. And food costs have soared by 38% amid the pandemic, according to the restaurant-supply-chain company Buyers Edge Platform.

"At the end of the day, inflation is coming," Roger Lipton, a restaurant-industry adviser and investor, told Business Insider.

According to Buyers Edge Platform, an analysis of $1.3 billion in purchases restaurants made in February and May showed that prices skyrocketed during the pandemic. Meat costs in particular soared, with the price of standard beef cuts rising by 87% and fresh ground-beef patties up 81%. The cost of chicken breasts rose by 23% per case in the same period.

One major factor was that food production shut down during the pandemic, according to Buyers Edge CEO John Davie. Meat-processing plants in particular saw massive COVID-19 outbreaks, forcing plants across the US to shut down. When plants reopened, social distancing meant that fewer employees were allowed on the job, further slowing production.

Additionally, Davie said, many products were diverted from restaurants to grocery stores during the pandemic, resulting in higher prices now that restaurants are once again buying more food.

Higher menu prices are coming — but can customers afford to pay?

Davie said people would most likely begin to start seeing higher menu prices soon.

"Generally, if the prices are significantly higher for 30 days or more, restaurants will have to start making decisions," Davie said. "Those decisions could either involve raising prices or in eliminating the higher-priced items from the menu. For example, some chains have removed brisket from their menus due to the escalated pricing."

In May, some restaurants started adding COVID-19 surcharges in response to rising meat prices. Most backtracked after backlash from customers opposed to the surcharges, with restaurants saying they would have to raise prices instead.

While costs are increasing, customers are seeking deals — putting restaurant owners in an uncomfortable position. UBS wrote in a note last week that analysts expected fast-food chains to focus on value in the medium term, with more deals and lower prices.

Wendy's rolled out a chicken-centric Biggie Bag and two for $5 deals in the wake of beef shortages. Popeyes debuted a $12 family bundle. Subway infuriated franchisees by bringing back the $5 foot-long, Restaurant Business reported — a bargain for customers that makes it difficult for owner-operators to turn a profit.

The plight of Subway franchisees highlights the uncomfortable position restaurants are in as customers begin to return. With high unemployment and a pandemic-induced recession, customers can't afford to spend more money at restaurants. But with higher food costs and new safety measures, the costs of running a restaurant are higher than ever.

"Nobody wants to lose customers because of their insensitivity to the fact that the consumer is so stretched," Lipton said. "So they're going to very carefully raise prices — because they're not going to lose money."