According to the U.S. Department of Agriculture, U.S. food prices will jump 3 to 4 percent this year. Processing food is so expensive thanks in part to rising gasoline prices and rising foreign demand in U.S. agricultural commodities. In fact, prices of corn, wheat and soybeans, crops that are used in a vast amount of U.S. foods, are 88 percent, 76 percent and 37 percent respectively from last year.
This raises a big question for restaurants and their bottom line. How big will this impact the food service industry? It is certain that they will be faced with raising prices or compromising margins or some of both. Some restaurant chains and retail will have more staying power depending on long term contracts but ultimately somewhere in 2011 prices will have to go up and consumers will feel the pain.
In terms of types of restaurants that will see the biggest impact? Steakhouses will get hit hard as well as burger operations. Chicken prices will rise but will be less affected and can recover supply faster. Further, seafoods have also increased significantly so there will be no complete escape.
So what else can restaurant operators do to offset these costs? Restaurants can adjust portions, move to chicken and less expensive protein (replace filet with NY or NY with Top Sirloin or replace lobster with shrimp but restaurants cannot affect markets short of McDonalds cutting their portions or deleting items. Overall, operators need to implement stringent cost controls.
Synergy’s supply chain management team is available for an initial consultation on implementing effective cost control strategies.
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