Restaurants can Expect Beef Prices to Continue to Rise

According to the U.S. Department of Agriculture, beef prices have hit an all-time high – topping the record set in 2003 at more than $2.11 per pound for choice grade beef. While this is a record in dollar value, when adjusted for inflation the number isn’t quite so startling. These prices represent a long-term sustained inflation on beef and veal prices that won’t end any time soon.

Factors Influencing Rising Beef Costs

There are a number of factors that have been contributing to the rising cost of beef over the last several years. The most obvious is the unusual weather patterns that have affected the ability of farmers and ranchers to be able to provide enough feed for their herds. Sustained drought last year made the production of corn difficult. It also caused many ranchers to sell their cattle because they couldn’t come up with enough grass or water on their land to sustain the herd.

This year the opposite problem is occurring in many parts of the Corn Belt, wherein they are getting too much rain to get the crop planted. The fact that many ranchers have been forced to significantly reduce their herd numbers, or worse, sell out completely, has also contributed to the rising cost of beef, as quite simply, there is no longer as much beef on the market as there used to be.

Given that it takes about two years for a cow to be old enough to go to market, it will take ranchers some time to be able to build their numbers up again, assuming weather and economic conditions permit the ability to do so. As a result, the cost of beef is projected to continue its rise well through 2016.

What Rising Beef Costs Means for Restaurants

A major issue for restaurants is the fact that their menu prices aren’t rising in-step with the increasing cost of beef. As a result, profit margins are much thinner than they once were. This puts restaurant owners in a tough position, given the fact that increasing your establishment’s menu prices typically doesn’t go over well with your consumer base. As a result, restaurateurs are having to get creative to make up the difference in other ways.

How Restaurants are Managing Rising Beef Costs

One obvious way to deal with the rising cost of beef is to simply rely more heavily on alternative protein sources such as chicken or pork, which are typically much cheaper than beef and veal. Aggressively promoting these menu options allows a restaurant to keep menu prices fixed while still receiving a decent profit margin.

Choosing less expensive cuts of beef is another option some restaurants are resorting to in order to close margins without increasing menu prices. Working with beef suppliers to ensure that the measurement specs for a cut of beef are as accurate as possible and looking for other ways to reduce cost such as eliminating packaging are methods that are also helping restaurants address the inflating cost of beef.

One positive in all of this is that the higher cost of beef is tempering its demand, which ultimately will help bring things back into balance. Until the time at which beef prices level out again, however, restaurants are going to have to keep looking for creative strategies to manage the rising cost of America’s favorite meat.

Menu Options to Reach Customers

The cost of restaurant operations is going up.  The increasing price of commodities may require restaurants to increase menu prices.  And all the while, consumers have become pickier about how they spend money.  They want value as well as a good price.

 

The challenge for a restaurant is to figure out how to make a profit while still offering value.  That is not to say that menu prices can’t be increased to generate profit.  But the underlying issue is respecting customers and realizing that they are savvier buyers than they were a few years ago.

 

If increasing the menu price is on a restaurant’s to-do list, value should be included along with it.  Customers don’t want to feel like they are being ripped off, so adding in some options that allow them more bang for their buck may be a good idea.

 

Prix fixe menus, smaller portion sizes for a lesser cost, and different pricing tiers are three ways a restaurant can offer value while still getting their share of profits.

 

It would also be wise for a restaurant to develop a pricing strategy that takes the customers’ needs into consideration rather than just increasing prices.

 

Upselling may also be a thing of the past as far as customers are concerned.  Instead of asking if a customer would like an extra option, train servers to analyze and cater to the customer’s needs.  Offering a personalized customer experience may be the name of the game.

 

Keeping up profit in today’s world of thrifty consumers looking for bargains doesn’t have to be an impossible feat.  But it is important for restaurants to think about the customers and not just the bottom line.

 

That is not to say they need to sacrifice the brand for the price.  Rather, make the brand and the experience an invaluable part of the consumers’ lives.  Offer value as well as a great dining experience.  Give them a reason to come back for more.

 

The Indirect Connection Between Egypt and the Prices on Your Menu

Unless you’ve been living in a cave somewhere, you must have heard by now about the unrest in Egypt and how the government there is under siege from the populous. However, what you may not be aware of is that the problems in the Middle East have the potential to rock the restaurant industry here in the United States as well. Here’s what you need to know.

The Real Reason the Unrest Started Now

For all that the Egyptians yearn to be free, they’ve been living under an oppressive regime for a very long time. This therefore begs the question – why now? What is it that has made Tunisia and now Egypt finally begin to try to throw off their corrupt leaders? The answer it turns out is food insecurity.

Rising Prices for Commodities on World Markets

The Egyptian unrest stems in large part from the fact that world prices for food commodities, especially things like wheat have been soaring lately. In a poor country like Egypt, this can literally mean the difference between starvation and survival. However, here at home, the same economic forces can have a profound impact on the restaurant industry.

Be Prepared for Higher Prices for Raw Materials

Bottom line, we can expect to see prices of all kind of food products rising this year because of the world rise in commodities prices. This means in turn we either will have to absorb the difference in our menus or we’ll have to raise prices in order to stay afloat.

Either way, the unrest in Egypt indirectly means tougher times ahead for the restaurant industry because of the fact that we must (by definition) rely so heavily on raw materials to create the foods that we serve to our diners. This does not bode well for an industry which is just starting to pull out of the recession. What will happen? Who knows – stay tuned.