Unexpected food cost increases this year are likely to force chain restaurants to raise menu prices even as they continue to face stiff competition, according to a new purchasing update released by restaurant supply chain co-op SpenDifference.
Prices for beef and cheese are at an all-time high, while the Porcine Epidemic Diarrhea Virus that broke out in Iowa last year has spread to 23 states, severely impacting pork costs. The sharp increases in commodity prices have also raised concerns that consumer food-inflation could reach 3 percent by the end of this year. The higher costs come as restaurant operators slowly start raising prices. The latest SpenDifference chain menu price tracking survey found that more than half of chains held the line on price increases during the first quarter. However, 93 percent of chains planned to raise prices during the second half of this year.
“Recent events affecting commodities may provide operators the impetus to follow through on their planned increases,” says SpenDifference CEO Maryanne Rose. “Unforeseen factors, whether it’s government policy, geopolitical events, disease, or natural disaster, often arise and drive prices higher. No matter the cause, volatility is real and managing the risks before the unknown happens is key.” The purchasing cost update revealed these key findings:
Cheese, butter and whey are 15 percent or higher in cost from the same time last year.
Beef prices are 15 percent higher compared to the same time last year.
Pork used for sausage has risen 21 percent in cost since the same time a year ago. The price of pork bellies used for bacon has risen a modest 2 percent, but it is coming off a year that saw record high prices.
Due to demand, the cost of liquid egg whites has risen 57 percent over 2013.
Corn prices, however, are falling and should help poultry producers increase their supplies.
“Operators are changing their menu mix and moving from pork and beef offerings to poultry,” says DeWayne Dove, SpenDifference’s vice president of purchasing. “Greater demand may drive up poultry prices, but the increases should be temporary.”
With commodities expected to remain volatile during the rest of 2014 and in the future, SpenDifference says operators can take steps to lessen the impact.
“Consider locking in prices now to benefit from the security of known margins and protect against sudden price swings,” Rose says. “Other options are making subtle changes in raw materials, such as buying frozen instead of fresh, slight changes in specifications, or slightly reducing the portion size of entrees if doing so does not alienate customers and hurt the brand, and offering LTOs on lower-cost products.”
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