Vimala Rajendran, owner of Vimala’s Curryblossom Cafe, stands outside the restaurant in Chapel Hill, N.C. on Friday, April 26, 2024. Paper-to-go products have seen a significant increase in price since Covid-19, and the restaurant’s dedication to sustainability means paying the inflated price to uphold their mission. | Photo by Jennifer Tran
Story by Alexandria deRosset
Photos by Jennifer Tran
Restaurant owners in Chapel Hill, North Carolina, are feeling the strain as they grapple with higher prices on food and supplies in the wake of a high-inflation period. Despite efforts by the Federal Reserve Bank, inflation has been slow to drop to pre-pandemic levels.
For Vimala Rajendran, owner of Vimala’s Curryblossom Cafe in Chapel Hill, higher costs are making it harder to operate her restaurant.
“As a result of the economic downturn at this time, we are not making a profit, we’re having a hard time making all our payments and bills,” Rajendran said.
Despite low unemployment rates, high job creation and wage growth, a recent period of high inflation spurred by the pandemic has left prices higher than consumers would like.
“Even though inflation is slowing, which means that the rate of change is slowing, prices are still a lot higher than they were four years ago,” Gerald Cohen, chief economist at the Kenan Institute of Private Enterprise, said. The Kenan Institute looks for solutions to economic issues and promotes private enterprise.
Inflation is a reaction to changes in supply and demand. It happens when goods and services become more expensive. In a healthy economy, a little bit of inflation is normal. The Federal Reserve Bank of New York tries to keep inflation around 2% each year.
“Inflation is the change in prices,” Cohen said.
Inflation peaked in June 2022, at 7.1%, according to a well-known measure of inflation called the personal consumption expenditures price index. Since June 2022, inflation has declined and is holding steady at about 3%.
Unlike gas prices, which move up and down rapidly, lower inflation rates don’t necessarily mean that prices will go back down on most consumer goods. Instead, lower inflation means prices will continue to rise but at a slower rate, Cohen said.
Rising costs of food and supplies, like takeout containers, mean that restaurant owners are making less money. To offset higher costs, owners like John Toogood are raising prices.
“[Basic commodities] came down a dollar or two, but they didn’t come down $10, and that’s when you say, ‘I gotta raise prices’,” Toogood said. Toogood is the owner of The Bread Shop in Pittsboro and Merritt’s Grill in Chapel Hill.
Toogood supplied Merritt’s, an iconic Chapel Hill restaurant known for its BLTs, with bread from his bakery for over 10 years before buying the sandwich restaurant in 2022.
Since 2022, Toogood has seen prices on bacon, bread and eggs increase drastically. Prices on bags of flour increased from about $13 per bag in 2022 to around $25 per bag in 2024, he said. To compensate, he raised the price of loaves by $1 each.
“They’re only $3 or $4 per loaf, so you add $1 to that…” Toogood said.
Restaurant owners like Toogood are trying to find a balance between raising prices enough to make a profit without losing customers. At Merritt’s, Toogood is trying to provide better customer service to keep people coming back.
“If we give them more service and they have a better experience, then [customers] will be willing to pay a little bit more so that we can make that profit,” Toogood said.
But consumers are finding their paychecks cover less than they did two years ago.
“I try not to eat out as much as I used to, I try to buy less at the grocery store for the week. It’s really how I budget,” Alyssa Custer, a 22-year-old living in Chapel Hill, said.
Custer, who is a student at Wake Technical Community College and a server at Carolina Brewery, said she worries about making enough to cover her costs of living.
“It’s really hard just serving, and paying rent [and for] college,” Custer said. “That’s what makes me nervous [about] being able to afford things,” Custer said.
Ideally, wages will rise alongside inflation so employees can afford to keep their jobs, Cohen, the economist, said.
Some employers, like Rajendran at Vimala’s, have raised their employees’ wages to keep up with inflation.
“We have increased the wages of all the workers. So our payroll is higher, and our cost of goods is higher,” Rajendran said.
She pays her workers $18 to $20 per hour, plus tips. In Orange County, where Chapel Hill is located, the living wage is $17.65 per hour as of January. In 2023, it was $16.60 per hour. The living wage is calculated by the nonprofit Orange County Living Wage, which recognizes employers who pay a living wage.
Toogood, owner of Merritt’s, has also increased his employees’ wages in the last few years.
“Before COVID, they were at $10, $11 [per hour] but now, just to get people in the door, it’s moved up to minimum $13 [per hour] up to $22 – $25 per hour,” Toogood said.
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One of the main ways to measure the health of the American economy is through consumer spending.
“If consumers stop spending, our economic health will fall,” said Michelle LaRoche, a business journalism professor at UNC Hussman.
Consumers haven’t stopped spending, but they’re putting more on their credit cards, according to recent data from the Fed. Between the end of the year in 2022 and the end of the year in 2023, credit card debt increased by $143 billion to $1.13 trillion. Credit card debt has been on the rise since 2021. On its own, this isn’t necessarily a problem. Credit cards act as short-term loans, allowing customers to pay for their purchases at a later time.
For Rajendran, owner of Vimala’s Curryblossom Cafe, recent price spikes have forced her to start putting business expenses on a credit card and paying them off at a later date.
“We’ve incurred some debts along the way because our expenses have surpassed our income,” Rajendran said. “We have had to, on occasion, pay our rent with a credit card or buy goods at some suppliers with a credit card.”
Vimala’s opened in 2010. Since 2020, the restaurant’s business has dropped by about 50%. Prior to that, expenses like rent and sales tax were paid upfront, Rajendran said.
“Typically, at some point, [people] run out of room to borrow, so they slow down their spending. But what’s not happening is the slowing down the spending part,” LaRoche said.
Instead of slowing down their spending, consumers are putting more onto credit cards.
More debt isn’t always a bad thing. In some cases, taking on more debt, like taking out a loan to buy a new car, is a sign of economic stability, Cohen said.
“Now the question is are people taking on too much debt? That’s a harder question to answer,” Cohen said.
When consumers cannot or do not pay their monthly card bills on time, the account becomes delinquent. The data from the Fed, which was released in February, shows credit card delinquencies are on the rise. Serious delinquencies, when a credit card bill is 90 days overdue, increased to 6.36% of all credit card debt in 2023. In 2022, 4.01% of credit card debt was because of serious delinquency, according to the report.
“Those delinquency ratios are a flashing yellow,” Cohen, the economist, said.
Rising delinquency rates may indicate that people have taken on more debt than they can pay off and will have to cut or slow spending. When that happens, consumers cut back on expenses like going to the movies or going out to eat.
Younger consumers and low-income consumers are moving into serious delinquency at higher rates than middle-aged and middle- to upper-income consumers, according to the data.
Banks are also affected by higher delinquency rates because they do not receive the money they have loaned out to customers. When that happens, banks have less money available to give new loans to people starting businesses, looking to buy a house or hire new employees.
“We’re starting to see delinquency rates at levels that kind of make me worried about a recession,” Cohen said.
Economists have been predicting a recession since 2023, after inflation spiked. But, as of now, the economic downturn has not come. Consumers have been feeling more positively about the economy since the end of 2023 and more people are planning to splurge in the coming months, according to data from McKinsey and Company.
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Shifts in supply and demand that lead to price changes cause inflation. The COVID-19 pandemic caused factory closures and shipping delays that severely interrupted supply chains.
When this happened, companies in the United States, like retailers, paid manufacturers more to ensure they would receive the goods. To cover the extra costs, retailers started charging customers more.
“We saw some of the inflation happen later than people were expecting into 2021 and 2022 because there was a bit of a lag in the price competition that occurred because of the supply chain problems,” LaRoche said.
Reduced supply during the pandemic was met with increased demand. Some consumers had extra cash to spend, as quarantine and remote work meant forgoing daily coffees, commuting and dry cleaning costs, LaRoche said.
For restaurant owners, one product that became especially important was takeout containers.
“We were doing takeout and no dining in the place which meant we were getting more containers,” Rajendran of Vimala’s said.
In the past four years the cost of paper takeout containers has more than doubled, Rajendran said. She added a 5% surcharge on takeout orders to cover the cost.
To bring supply and demand back into balance and manage inflation, the Fed has one option: to change interest rates.
Interest rates are how much it costs to borrow money. When repaying a loan, customers must pay the cost of the loan plus the cost of the interest.
When interest rates are higher, it costs consumers more to repay loans they have taken out.
“The Fed [was] raising interest rates, they’re trying to slow demand by making [large purchases] less affordable,” Cohen, the economist, said.
When fewer people borrow money to buy houses or cars because of higher interest rates, demand slows down and the economy has a chance to level out.
If the Fed brings interest rates down too soon, inflation will shoot back up. Interest rates have hovered around 5% since July, which is higher than they have been since 2007. The Fed said that it does not plan on cutting interest rates until inflation starts to decline, possibly later this year.
“I think it’s going to still take some time,” Cohen said.
In the meantime, restaurant owners are looking for different ways to increase profits and combat high costs.
At Merritt’s, the sandwich shop, owner Toogood has been working on getting more people through the doors.
“The way we’ve counteracted inflation has tried to increase our volume so that there’s still a little bit of profit at the end,” Toogood said.
After taking over in 2022, he has prioritized getting sandwiches to customers faster and adding more seating and parking.
Despite an increase in volume, Toogood anticipates having to raise prices again to keep up with inflation, he said.
“We probably haven’t raised prices enough. We may have to do that again, and I dread that,” Toogood said.
At Vimala’s, the Indian restaurant, owner Rajendran is buying less to save money as business has slowed since the pandemic.
“For about four years, business has dropped,” she said. “It’s now slowly trying to come up.”
Rajendran emphasizes her commitment to quality ingredients and made-from-scratch food.
“We will always depend on people who feel impressed and are in awe of the taste, and quality of our food,” Rajendran said.
