Executive Briefings

Restaurants to Back Off on Menu Price Hikes, Increase Group Purchasing

Chain restaurants, battered by value-hungry customers and rising commodity prices, are showing little appetite for significant menu price increases, according to a new survey of industry executives conducted by SpenDifference, a supply chain co-op that helps restaurants save money.

In fact, menu price increases last year were, on average, slightly lower than 2011.

"¢ Midway through the fourth quarter, 2012 annualized price increases were averaging between 1 and 1.5 percent, with chains expecting to take some additional late-year pricing increases.

"¢ In 2011, the majority of chains reported raising prices about 1.5 percent.

"¢ Perhaps more telling, in 2011, 14 percent took little or no price increases (0 to 0.5 percent) at all. Last year, 26 percent held the line on pricing.

The vast majority of executives responding to the survey reported flat to positive same store sales for the most recent quarter. "Nearly a third of the chains reported comp store sales increases of four percent or more," said Brad Moore, SpenDifference senior vice president. "But they also told us that traffic lagged over the past quarter, which speaks to the state of the economy and the potential impact of pricing taken in 2012."

Most price increases to date - 63 percent - were taken across the board, although nearly a quarter of chains - 23 percent - reported raising entrée, soup and salad prices.

The executives projected menu inflation for 2012 to run 1.7 percent. "That may be overly optimistic," Moore said. According to SpenDifference, commodity price increases in 2012, on average, topped two percent. "2012 was already at a high level for many items, and concepts that purchase a lot of beef and dairy saw increases of more than 5 percent."

While chains continue to be leery of taking big increases, nearly three-quarters - 72 percent -are countering rising commodity prices by taking some pricing. Other strategies include promoting items with lower food costs, renegotiating contracts, changing suppliers, increasing use of third-party purchasing groups, and reducing portion sizes. Some are eliminating high cost items all together. "Operators are realizing that they need to be much more proactive and aggressive in their purchasing and supply chain management," said SpenDifference CEO Maryanne Rose. She added that this year commodity prices are expected to rise three percent, with some proteins going up more than 15 percent. "Other industries embraced group purchasing years ago. The increased use of third-party purchasing organizations shows that the restaurant industry is beginning to recognize the benefits of the group purchasing model, including co-ops."

Source: SpenDifference

In fact, menu price increases last year were, on average, slightly lower than 2011.

"¢ Midway through the fourth quarter, 2012 annualized price increases were averaging between 1 and 1.5 percent, with chains expecting to take some additional late-year pricing increases.

"¢ In 2011, the majority of chains reported raising prices about 1.5 percent.

"¢ Perhaps more telling, in 2011, 14 percent took little or no price increases (0 to 0.5 percent) at all. Last year, 26 percent held the line on pricing.

The vast majority of executives responding to the survey reported flat to positive same store sales for the most recent quarter. "Nearly a third of the chains reported comp store sales increases of four percent or more," said Brad Moore, SpenDifference senior vice president. "But they also told us that traffic lagged over the past quarter, which speaks to the state of the economy and the potential impact of pricing taken in 2012."

Most price increases to date - 63 percent - were taken across the board, although nearly a quarter of chains - 23 percent - reported raising entrée, soup and salad prices.

The executives projected menu inflation for 2012 to run 1.7 percent. "That may be overly optimistic," Moore said. According to SpenDifference, commodity price increases in 2012, on average, topped two percent. "2012 was already at a high level for many items, and concepts that purchase a lot of beef and dairy saw increases of more than 5 percent."

While chains continue to be leery of taking big increases, nearly three-quarters - 72 percent -are countering rising commodity prices by taking some pricing. Other strategies include promoting items with lower food costs, renegotiating contracts, changing suppliers, increasing use of third-party purchasing groups, and reducing portion sizes. Some are eliminating high cost items all together. "Operators are realizing that they need to be much more proactive and aggressive in their purchasing and supply chain management," said SpenDifference CEO Maryanne Rose. She added that this year commodity prices are expected to rise three percent, with some proteins going up more than 15 percent. "Other industries embraced group purchasing years ago. The increased use of third-party purchasing organizations shows that the restaurant industry is beginning to recognize the benefits of the group purchasing model, including co-ops."

Source: SpenDifference