Are customers that aware of price increases? Unless you're eating out at the same joint every day, a 10% increase isn't very noticeable. Say you have an item priced at $9.99, bumping it up 10% makes it $10.99.
Restaurant sales are rarely made up of price conscious buyers. Sure there's a limit, but short of the blue light special crowd, most customers are eating out for either variety, social reasons, or being tired of cooking.
> Are customers that aware of price increases?
Yes. This is exactly the question answered by the concept of supply and demand curves. Of course you can argue about the shape of those curves but their existence is not in doubt.
Supply and demand curves don't address the customer's awareness and perceptions at all price increases. Sure if the price doubles, they'll notice. But a 5-10% increase in something infrequently purchased would not be noticeable to the average consumer. Now if it's something they purchase everyday? They'd notice a penny increase.
So as a restaurant, very roughly speaking, you basically can raise prices until the line starts to go away. Unfortunately customers can be very stubborn and would rather wait in a 1hr line somewhere else, or not go out at all, for quite a while before eventually coming around to the new normal and accepting your new, higher price.
And you will still probably end up with fewer restaurants along the way, as those least-profitable and with the shortest lines outside, go away.