rewrite this title Egg Prices Are Taking the Fun (and Profit) Out of Brunch – NerdWallet

With egg prices at a record high, shoppers know the pain of trying to buy eggs and finding only empty shelves or horrifying prices. But do you know how it’s hitting your favorite weekend breakfast spot?

In a move demonstrating just how impactful the ups-and-downs of egg prices have become, Waffle House recently announced it added a 50-cents-per-egg surcharge to customers’ bills. The Georgia-based chain told CNN that it is watching egg prices and will “adjust or remove” the extra charge based on market conditions.

“The continuing egg shortage caused by HPAI (bird flu) has caused a dramatic increase in egg prices,” Waffle House told the news network. “Customers and restaurants are being forced to make difficult decisions.”

And it really is a hard decision for restaurant owners to make, says Bo Davis, CEO and co-founder of MarginEdge, an accounting software provider that helps restaurants track expenses and adjust to price changes.

On the one hand, egg-centric restaurants already operating on thin margins are dealing with an unworkable math problem, Davis says. During the week of Feb. 3, the median price for a dozen eggs was $7.55 nationally (that’s wholesale), according to MarginEdge data collected from its 10,000-plus restaurant clients.

But on the other hand, customers are tired of high prices after years of inflation and will go somewhere else if their favorite diner becomes too pricey.

“At the end of the day, it’s just hard,” Davis says. “Your profitability is going to get wiped out until this gets fixed. You can’t charge enough money to make a healthy profit on eggs at that price if you are an egg concept or a breakfast concept.”

NerdWallet spoke with Davis about what customers might like to know about how restaurants adjust to price spikes. The interview has been edited for length and clarity.

NerdWallet: For restaurants, how big a deal is it when the price of a single ingredient becomes this volatile?

Davis: We have a fair number of clients that are breakfast places. And for them it’s really, really challenging and borderline devastating.

In the traditional sort of menu planning, a restaurant expects 25 to 30% of the costs that they’re charging a client to be their food costs. And there’s another 30% that’s basically labor. And then there’s about 20 to 30% that are other costs. And typically, you’ve got about a 10% margin at the end of it. So if you think about that math: $0.30 on the dollar going to food, with a 10% profit margin, means that if that food item goes up 33%, you’re broke.

If you take something like an omelet where the cost is almost entirely eggs, and the price triples — it doesn’t go up 33%, it triples — then you go from a 30% plate cost to a 90% plate cost. You have the same labor, you have the same rent, you have the same, you know, cleaning supplies and packaged goods and all the other things the restaurant needs. But now you’re minus 50 or 60% on that omelet. You can see how even a 50-cent up-charge would struggle to cover that cost.

NerdWallet: How do restaurants cope with high egg prices?

Davis: The first thing you do is you try to drive customers to a different menu item. The next thing you can do is adjust operations to just make sure that you’re running it as efficiently as possible — that no eggs are getting lost.

The next thing you can do is raise prices. That’s really hard when you see a price like this spike as high as it is. The Waffle House example of 50 cents on an egg — that’s tough to do and it’s tough to fully recapture the cost.

The other thing you can do is lower the quantity you put on a plate, which is also hard, right? How small of an omelet will a customer accept before it just doesn’t work any more?

I guess the last one I would also say is you can trade down quality. So if you’re using cage-free eggs, you can trade to the less expensive non-organic eggs. If you’re using those, you can trade to liquid eggs, where you’re getting them at a lower cost.

NerdWallet: Using Waffle House as an example, why apply a surcharge instead of raising your menu price?

Davis: They believe it’s temporary. With menu prices, you do your very best to adjust them as slowly as possible because it’s the easiest way to push customers away.

I would imagine they also train their servers to tell people, “Look, you know how you’re having a hard time getting eggs? So are we. We have to do this for a minute. We’re hoping it’ll go away soon.” And that would, I think, dramatically minimize the impact of it on a customer or at least not make a customer change their permanent buying decisions.

The surcharge is unusual. And I think it is because this is such an anomaly. What’s interesting with eggs is that because the price move is so intense, if you’re an egg concept, that change is so dramatic that even if other food prices were bouncing down, they’re just not going to offset it.

NerdWallet: Are restaurant-goers going to see more surcharges like the one at Waffle House, do you think?

Davis: Yes. When we saw supply-chain issues and spiked prices around the COVID-19 stuff, it was very clear what had happened, and they were temporary, and the supply chain existed, it just was frozen for a minute.

This isn’t that. This isn’t some boats got stuck or whatever. The chickens are gone. You have to grow new chickens, and the bird flu’s not gone. So it does feel like this is not going away in the near term. I would expect that the surcharges would continue, but you’d also just see more and more restaurants trying to find ways to get customers to eat substitute products. Because it’s hard to just charge more and more and more.