News

Report: 93% of restaurant chains plan to raise menu prices

June 30, 2014

This year's unexpected food cost increases will likely to force chain restaurants to raise menu prices even as competition gets tighter. A new report from supply chain co-op SpenDifference shows that sharp increases in commodities have raised concerns that consumer food-inflation could reach 3 percent by the end of this year. For example, 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, significantly impacting pork costs.

According to a news release, 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," CEO Maryanne Rose said in the release. "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 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," DeWayne Dove, SpenDifference's vice president of purchasing, said in the release. "Greater demand may drive up poultry prices, but the increases should be temporary."

With such volatility expected throughout the remainder of the year and beyond, Rose suggested the following to lessen the impact:

• Consider locking in prices now to benefit from known margins and avoid sudden price swings;
• Make subtle changes in raw materials, such as buying frozen instead of fresh;
• Make slight changes in specifications or slightly reduce the portion size;
• Offer LTOs on lower-cost products.