Industry News | July 3, 2014 | QSR Exclusive Brief

As Commodity and Labor Prices Rise, Operators Up Menu Prices

The price of certain cuts of pork is up as high as 21 percent over last year, thanks in part to the spread of the Porcine Epidemic Diarrhea virus.
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Prices of poultry, pork, and beef are all on rise, and restaurant operators are starting to respond with price hikes for the latter half of the year, according to new research from supply chain support firm SpenDifference.

“In the pork industry, we’ve got the [Porcine Epidemic Diarrhea] virus that’s impacting supply,” says DeWayne Dove, vice president of purchasing for SpenDifference. “We’re going to notice that impact in the second half of the year; it’s still somewhat unknown what exactly we’re going to see there, but we’re already seeing things like pork trim currently trending 21 percent over last year.”

The Porcine Epidemic Diarrhea virus that broke out in Iowa in 2013 has spread to 23 states, and even the price of pork bellies is taking a hit with a 2 percent increase after a year of record-high prices, SpenDifference research shows. Additionally, the price of beef is up to 15 percent higher compared to last year. Dove says the cattle industry is making efforts to increase herd size, but those efforts won’t impact supply until 2016.

“The good news is corn is trending this year 20 percent below 2013, and in 2015, we’re going to hold that like pretty steady,” Dove says. “Corn is a major component in regards to feed costs, so that’s going to directly impact what we’re seeing in the poultry industry.”

Poultry production is expected to rise, he adds, thanks to the fact that it only takes seven weeks to grow a chicken. In the short term, many quick-serve operators have responded to the rise in commodity prices by pushing poultry LTOs like boneless chicken breasts and wings, Dove says. And while many operators held off on raising prices for consumers, that may not be possible for the latter half of the year with no relief for meat commodities in sight.

According to a survey of nearly 60 chain restaurant executives conducted by SpenDifference, 51 percent of restaurants made no price adjustments during the first quarter, but 93 percent of chains plan to raise prices this year an average of 2.1 percent. Food cost was the top reason chains will raise prices, but survey respondents also cited labor costs as a point of concern.

This comes as 10 states and the District of Columbia recently passed minimum wage increases, with the latest increase going into effect next Tuesday in California, Dove says, adding that, as of June 1, 22 states and the district have minimum wages above the federal minimum wage.

By Tamara Omazic