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Food Costs, Minimum Wage Hikes Drive Increased Prices at Nation's Restaurants

The majority of America's chain restaurants held the line on price hikes the first part of the year but plan to start raising them, according to a new survey from SpenDifference, a restaurant supply chain co-op.

Food Costs, Minimum Wage Hikes Drive Increased Prices at Nation's Restaurants

Despite being confronted with higher food and labor costs, 51 percent of the surveyed restaurants made no price adjustments during the first quarter. Those that did raised prices an average of less than 1 percent. However, the study found 93 percent of chains plan to raise prices this year an average of 2.1 percent.

“It’s not surprising that operators held prices steady in the first quarter, as we were expecting some relief on most commodities,” said SpenDifference CEO Maryanne Rose. “But once again, the unpredictable nature of the markets reared its ugly head with record high cheese costs and the onset of PEDV that is significantly impacting pork. I expect many menus are in the process of being changed, with higher prices appearing soon,” she said.

SpenDifference, which works with mid-size and emerging chains, periodically questions executives on menu pricing strategy. Respondents represented chains in all segments, ranging from 10 to more than 800 units.

Food cost is the top reason chains are raising prices, but 57 percent also cited rising labor costs, including higher minimum wages, as a contributing factor. Costs associated with healthcare and the Affordable Care Act – hot industry topics – were of less concern, with 31 percent attributing price increases to them.

The survey found chains expect their food costs this year to go up 2.1 percent, which correlates with planned price hikes. “The problem is that commodity costs are increasingly unpredictable, “ Rose said. “A 2 percent jump in menu prices may not cover this year’s uptick in food costs, not to mention higher labor and other costs.” In fact, for the first quarter alone chains reported an average 1.5 percent increase in food costs.

Restaurant Chains Poised for More Price Hikes

After raising prices, the top strategies to control costs are renegotiating contracts (55 percent), promoting items with lower food cost (53 percent), developing limited-time offers with lower food cost (41 percent) and eliminating items (40 percent).

QSRs More Aggressive

A greater percentage of quick-service restaurant brands raised prices at least 0.5 percent during the first quarter – 62 percent compared to 49 percent for all chains. Likewise, 53 percent plan increases this year of 2 percent or more, versus 42 percent for all respondents. QSR concepts are more optimistic food cost inflation will remain under 2 percent (69 percent compared to 59 percent for all chains).

However, they appear to be more impacted by labor expenses, with 77 percent saying menu price hikes are intended to cover higher minimum wage and labor costs, compared to 57 percent for all chains. Almost a quarter plan to increase the use of third-party purchasing organizations, versus 15 percent for all chains.

Source: SpenDifference

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