Industry News | August 26, 2011

The Big Mark-Up

The U.S. Department of Agriculture released its Consumer Price Index for 2011, forecasting that restaurant food prices would rise 3–4 percent in the year.

Quick-serve concepts across the country are dealing with the twin pressures of increased gas prices and rising food costs, and prices at several chains have already started to climb. 

In June, Dickey’s Barbecue Pit, a 147-unit, Dallas-based chain, publicly announced that it was raising its prices across the board by 10 percent in response to market conditions.

“We’re doing this because we see prices going up,” says Dickey’s president Roland Dickey Jr. "Our pork price have gone up 19 percent. Our grocery prices across the board are up 11 percent over the past year.”

Some foods have been harder hit than others; potato prices rose 13.4 percent from April 2010 to April 2011, and ground beef rose 12.1 percent during the same period.

As the CEO of Pools Restaurant Group, the parent organization for Petro’s Chili and Chips and Gandolfo’s New York Deli, Dan Pool says he has been concerned about food costs all year. He says that when costs go up, there is no other solution but for prices to follow.

“We’re doing all we can to be as frugal as possible,” Pool says. “But at the end of the day, there’s a certain amount that has to be passed on because in quick service, there’s not much of a profit margin.”

Some chains are finding creative ways to adapt to food-cost increases. Tex-Mex fast-casual chain Moe's Southwest Grill has market hedges on the wheat, corn, oil, rice, and cheddar block and barrel markets to protect itself from price swings. Southern California–based ChickPita Mediterranean Grill, meanwhile, sends its delivery drivers to pick up food so it can avoid paying a distribution company.

Ultimately, though, quick serves may have to follow the lead of Dickey’s and other quick serves—like Starbucks and Chipotle, who also raised prices on their core products—says one industry consultant.

Ron Gorodesky, president of Restaurant Advisory Services, says the historically low inflation of the past couple of years has been the real anomaly, and that this year's increases are simply a return to business as usual.

“For so many years, we've always used 3 percent as a benchmark because that's what you could rely on,” Gorodesky says. “To a guy that's been around for awhile, 3–4 percent is not a big deal.”