Beef may not be what's for dinner at your favorite restaurant come 2009.
Restaurants, working now to secure supply and price contracts for meat and other commodities for the upcoming year, are expecting big increases in food costs. Those increases will likely lead to menu changes and price hikes.
Some chains are already adjusting their menus to reflect high costs for beef and chicken. CKE Restaurants Inc., which operates the Hardee's and Carl's Jr. chains, stopped offering Double Cheeseburgers in its two for $3 promotion at the end of August. The replacements: Jumbo Chili Dogs and Hot Ham 'N' Cheese Sandwiches.
Even fast-food leader McDonald's Corp. is considering changes to its popular dollar menu – either changing menu items or bumping up prices – citing the high cost of selling meat at such low prices.
The decision to raise prices or change menus could have harsh repercussions, especially because more diners are already eating at home to avoid pricey restaurant food. With consumers questioning whether their retirement savings will be available when the time comes, paying more for a meal out might be even harder to stomach.
But for restaurateurs, there may not be much choice.
“This is the most challenging environment for restaurant operators regarding food price inflation on the wholesale level for almost 30 years,” said Hudson Riehle, senior vice president of research at the National Restaurant Association.
Wholesale food prices have jumped 8.7 percent year-to-date through August, Riehle said. That's on top of a 7.6 percent increase in 2007.
In 2006, by comparison, wholesale food prices climbed just seven-tenths of one percent, Riehle said.
Menu prices, meanwhile, have gone up just 4.2 percent year-to-date through August – a hefty hike for consumers but not enough boost to completely offset higher food and ingredient costs.
Beef and other proteins have arguably hit restaurant margins the hardest this past year. Beef and veal costs have gone up about 19 percent through August from last year. Processed chicken has jumped about 3.5 percent, Riehle said.
Restaurants typically pay for their meat on the spot market, which can be volatile because prices are based on supply and demand, or negotiate longer-term contracts with suppliers that set the price.
The contracts typically last 90 days to a year. Traditionally, the longer contracts are favored because they offer a guaranteed supply and price. Some suppliers, though, have been more reticent about signing the longer 12-month contracts for 2009.
To offset the costs, some restaurants are already planning price increases. Chipotle Mexican Grill Inc. has said it will raise its prices in its fourth quarter to offset an expected 7 percent to 10 percent rise in food costs next year. McCormick & Schmick's Seafood Restaurants Inc. has also said it will boost its prices because of higher commodity costs.