July 9, 2014

Rising beef prices bite into profits at Charlotte restaurants

With cattle production dwindling nationwide, beef prices are rising, driving restaurant owners to raise menu prices or offer more alternatives to popular dishes in order to stay profitable.

An 11 percent jump in wholesale beef prices is leaving Charlotte restaurant owners with a stark choice: charge more for menu items or swallow the costs themselves.

Some are raising prices for beef dishes while promoting poultry-centered specials, which are more profitable right now. Others are holding prices steady and looking to sign long-term contracts with suppliers before prices rise still further.

But despite the effort, many restaurant owners say the beef prices are hurting their bottom line.

David Lucarelli, executive chef at The Cowfish in SouthPark, said it’s the talk of the restaurant industry: “Everybody’s complaining about it.” He said the cost of the specialty beef he uses increased about 15 percent two months ago, sending his total revenues falling by about 1.5 percent – a considerable hit, he says, given the generally thin profit margin in the restaurant business.

“Everybody’s looking at gearing their menu towards other items that don’t have these problems,” he said.

For choice-grade beef, the most popular variety consumed in the U.S., wholesale prices rose 11 percent in the 12 months that ended in May, according to the U.S. Department of Agriculture.

Driven by a prolonged drought in the western United States, the prices will likely rise nearly 5 percent for all of 2014, USDA economist Bill Hahn said.

Retail prices, which typically lag one to three months behind wholesale prices, peaked in April, then dropped three cents to $5.45 a pound in May. Hahn said he expects to see a continued price increase throughout the summer, when meat demands are at their highest, but then they could begin to decline.

“We’ve weathered storms like this in the past, and it’s been OK,” Lucarelli said. “This one seems to be a little bit longer in duration than what we’ve seen in the past.”

Finding ways to cope

Frank Scibelli kept hoping prices would stop rising.

“For the longest period of time, we really tried to eat it, thinking it was something that was a little bit cyclical,” said Scibelli, whose local restaurants include Bad Daddy’s Burger Bar and Midwood Smokehouse.

Scibelli said he recently raised prices at Bad Daddy’s on certain items, particularly those that use heavy amounts of beef and bacon. In exchange, he said he lowered prices on less costly items, such as the black bean burger. He also started offering alternatives such as a chicken burger and chicken nachos.

“That way we felt customers were getting as fair a shake as we could give them,” he said.

Others said they felt forced to raise prices across the board, so they tried to improve the products. American Burger Co. raised prices between 15 and 20 percent when it changed its menu earlier this year, said Mark Allison, senior vice president of culinary and kitchen operations at Chanticleer Holdings, which operates the restaurant. Formerly known as American Roadside, the restaurant has locations in SouthPark and uptown.

But Allison said the price of his burgers – between $6 and $7 – includes certified Angus beef and remains competitive in the market.

Despite rising food costs, menu prices at Brazz Carvery & Brazilian Steakhouse in uptown have fallen slightly over the past year, head chef Alex MacDonald said. He said the restaurant lowered the cost of a main dish about $3 in an effort to draw more customers.

The decrease has helped the restaurant hold on to customers, but it hasn’t helped the bottom line, MacDonald said. He said profits have dropped about 12 percent.

“We’ve been taking a huge hit, because we’re forced to continue to buy our supplies at their price,” he said. “There’s no other options.”

Offering alternatives

At Dressler’s Restaurant, with locations in Charlotte and Huntersville, about half of the customers are coming in to order steak, said head chef Scott Hollingsworth. He said they’ve raised prices some – “a dollar here, a dollar there” – but not enough to offset costs.

Hollingsworth said the restaurant has been promoting seafood and vegetables from local farms, which customers like. As for red meat, they’re offering less expensive cuts that are becoming more popular than pricier New York strip steaks and filet mignon, he said.

At supermarkets, customers are also turning to the less pricey cuts, according to some accounts.

“We’re seeing customers purchase more cube steaks instead of T-bones and burgers instead of steaks,” Keith Dailey, a spokesman for Kroger Co., told The Wall Street Journal last week. The company acquired Matthews-based Harris Teeter in January.

Salsarita’s, the Charlotte-based fast-casual Mexican chain, is also emphasizing options other than beef. One summer promotion is a chopped salad made with chicken.

“If we can get people to use more chicken by how we present it, that’s fine,” said CEO Phil Friedman, adding that daily specials will feature “whatever protein makes the most sense at the time.”

Friedman said he signed a nine-month contract with Salsarita’s beef supplier three months ago in order to lock in prices.

Scibelli, of Bad Daddy’s, said he’s looking into making a similar move, but Lucarelli at Cowfish said it’s nearly impossible to find such a contract for the type of premium beef he serves.

For now, most restaurants say they’re simply trying to balance higher costs and lower revenues without putting pressure on their customers to pay more or choose other products.

“Bottom-line concerns for The Cowfish are kind of on the back burner for now. We’re pushing the quality angle,” Lucarelli said.

“We’re not in the business to try to change what the public wants.”

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