A restaurant's success hinges on its costs—especially food costs.

Guacamole is a point of pride for the culinary team at the two Dallas-area Urban Taco restaurants. And it’s no wonder; in addition to the traditional mix, the modern Mexican concept offers several inventive takes on guac. Its Palmas version features mango, papaya, jicama, cranberries, and a passion fruit vinaigrette. And the Polanca mash-up includes pineapple pico, mole poblano, and roasted pepitas.

So skyrocketing avocado prices in 2017 hit the concept right where it hurt. Weak yields paired with unrelenting consumer demand for the fruit fueled rising prices last year.

“We do pride ourselves on keeping guacamole as a staple,” says Chef Aaron Nelson, culinary director for Urban Taco parent, Del Sur Restaurant Group. “There is no substitute.”

Del Sur, which operates three other restaurants in addition to its two Urban Taco locations, ordinarily pays less than 50 cents for each avocado it purchases in bulk. But last year, prices more than quadrupled, with a case of 48 jumbo Hass avocados topping $100 at one point. “That’s just astronomical,” Nelson says.

To weather other price hikes, the culinary team has sometimes swapped out ingredients on menus; if beefsteak tomato supplies are ravaged, they might move to Roma tomatoes. When limes went on a wild ride a few years ago, the company made lime garnishes optional and packed freezers with frozen lime juice amid increasing price hikes for fresh limes. 

But avocados were another story. Suppliers offer a less expensive, frozen, chopped avocado product, but Nelson says diners would notice such a change in Urban Taco’s prized guacamole. 

“We’ll switch within our means as long as the product is high quality,” he says. “We’re very fortunate that we can print menus in house, so if we need to make a change, it’s not a big, long process to do that.”

The unpredictability of avocado prices last year highlighted the constant struggle of restaurateurs who must monitor and react to constantly changing commodity prices. Del Sur Restaurant Group stays in close contact with suppliers and keeps watch over current events like weather problems and border disputes to prepare for changes in prices. 

“We have a lot of buying power as far as some things go, so if we know it’s about to spike, we can go in and buy more and kind of lock the price in,” Nelson says. “It’s really us as a restaurant group paying attention to what is happening in the world.”

Nelson predicts a mostly stable year of food prices in 2018, thanks in large part to the overall commodity market. But some in-house moves to more premium products have also helped even out price fluctuations. The restaurant group has recently moved away from commodity beef to top-shelf, locally produced wagyu beef. It’s obviously more expensive, but Nelson says it’s less susceptible to unexpected price changes because it’s a sustainable, high-quality product that is produced with great care.

The United States Department of Agriculture has predicted overall retail food prices will increase 1–2 percent in 2018. Fats, oils, and processed produce prices could go down this year, but meats, eggs, and dairy costs are expected to rise.

“Overall, food costs are actually expected to be relatively stable in 2018,” says Wade Winters, vice president of supply chain at purchasing partner Consolidated Concepts. Winters thinks restaurants have bigger battles, like competing for value-minded customers in the ever-crowded competition for the consumer food dollar. “Restaurants have a lot to deal with in 2018. I don’t think food costs are going to be their challenge,” he adds.

But operators may see some ongoing pain points with certain high-priced commodities, like bacon or chicken wings. Beef and pork supplies look to remain fairly steady, Winters says, but chicken continues to see strong demand, particularly for wings. Dark meat, particularly thigh meat, was once considered inferior to breast meat, but the two have almost flipped in terms of cost, Winters says. Chicken tenders are also gaining in popularity and have the potential to become the next chicken wings.

Corn, wheat, and soybean crops are relatively abundant, leaving those prices relatively stable—for now. “But anything can throw a wrench in them,” Winters says. “Mother nature can deliver too much rain or not enough.” For restaurateurs, flexibility is key to survival. If a brand can swap out certain cuts of beef or pork, for instance, that can greatly insulate it against wild price swings.  

Larry Pierson, vice president of supply chain at Texas-based chain Abuelo’s, says all signs point to favorable commodity prices in 2018. 

“I do think it’s stable,” he says. “My definition of stable is something that’s between a zero and a 1.5 percent increase. So I see slightly more increase for 2018 than we’ve had in the three previous years. But compared to what the markets were back five, six, seven years ago, I still see 2018 to be a pretty stable year.”

And that’s more than a mere prediction. Many of Abuelo’s ingredients are purchased on long-term contracts, allowing the company to secure prices for months at a time, barring certain catastrophic events like floods or drought. The chain’s top commodity spend comes the way of beef skirt steak. “I’ve already got it contracted for 2018 at a better price than we had in 2017,” Pierson says. “That will have a good bearing on our food cost.”

It’s a similar story for cheese at Abuelo’s. Contracts for the first two quarters of 2018 kept cheese prices at the same rates as 2017, and Pierson thinks a softer dairy market may even push those prices down toward the back half of the calendar year. 

Still, some products are apt to go up in price. Wheat, for instance, is likely to push the cost of Abuelo’s flour tortillas up 4–6 percent in 2018. 

Whatever unforeseen changes in prices may come this year, Pierson says, Abuelo’s will find a way of coping. The chain has a history of avoiding knee-jerk reactions to short-term price challenges, he says.

“I think we’re pretty rigid in that we’re not going to make a change either on the pricing side of our menu or on the quality of what we’re serving just because we see a 30- or 60-day price hike on an item,” he says. “We just don’t do that.”

Feature, Finance, Abuelo's