Rob Green, director of the National Council of Chain Restaurants, called last year’s drought the worst in 50 years. The corn shortage, among other issues, affects the costs of proteins from chicken wings to ground beef.
“Last year USDA retail was up about five percent and that’s possibly the kind of increase you’ll see for all beef prices in 2013,” says Kevin Good, a senior analyst for CattleFax.
The response of the restaurant industry often depends on what type of product they are looking for, he says.
“If a menu has choice sirloin they could get everyday, they might be more willing to go hand-to-mouth because of a premium in the future,” Good explains. “For a high-end restaurant with bigger margins, they need to make sure they’ve got certified Angus Beef or prime rib; so they’ll be more willing to step out in front and maybe pay a higher price to [ensure] they’ve got the product.”
Beef isn’t the only protein affected, Good adds. All protein costs will have to compensate for added input costs, such as elevated grain prices, drought, or ethanol usage.
Casual chains as well as fine dining feel the price pressures. Quaker Steak & Lube makes 30 percent of its entrée sales in wings.
“We are already trying to determine how we could mitigate the high cost of chicken wings for our franchises,” says president and CEO John Longstreet.
One strategy is menu engineering—and packaging proteins with options such as broccoli, fries, or fried pickles.
Menu diversification such as adding salads, salmon, and a Bowl Bearings category has also helped with price increases. It’s not a full solution, but it’s progress, he adds.
“With all of what we did through engineering and diversifying our menu, we [still] can’t take the full inflation in pricing,” Longstreet says. “We find ways to offer more craveable items that customers will find to be a great value that are at a lower cost to us.”
At sushi-burger bar The Cowfish, in Charlotte, North Carolina, executive chef David Lucarelli says, “The problem this time around is that everything is going up, which makes it really difficult to do any type of menu manipulation. With a product like a gourmet burger, we have to limit how much we charge and we struggle with that ceiling sometimes. It’s a choice between higher food costs or raising prices, and many times raising prices is not an option.”
His solution is to monitor the situation and work as closely with vendors as possible.
“We use 1,000 pounds of beef a week, so if there’s a price increase of a nickel, we need to know that loss and categorize it,” Lucarelli says. “You just have to take the higher price and concentrate on keeping your market share until the drought is over.”
Larger chains such as Johnny Rockets also prioritize vendor relationships.
“Our system doesn’t allow for frequent price changes because menus are only printed once or twice each year,” notes executive director of purchasing, James Leung. “Thanks to long-term relationships with suppliers (most lasting 10 years or more), we are prepared for challenges with both price and availability. They inform us of any shortages with ample advance notice; and we create a plan to defer increases over time.”
Rising prices haven’t been as big an issue for companies that have their beef locked in for the coming year.
But even if 2013 brings more rain, Good predicts: “We’re really looking at 2016 before we get more product on the market.”