Poultry, pork costs expected to fall in 2014

The cost of food products used by most restaurants is expected to increase overall by 2 percent in 2014, according to a newly released purchasing cost outlook by purchasing co-op SpenDifference LLC. This is compared to the 2.6 percent increase experienced so far this year, and would mark an improvement in food cost burdens for most operators.

For the last five years, the total inflation rate has been 7.1 percent, according to the outlook.

Much of the relief heading into 2014 will come from the price of corn dropping an estimated 20 percent. Bloomberg News reported today that the U.S. harvest is the biggest ever.

This news will lead to cheaper poultry prices, except for wings, which are expected to increase 2 to 3 percent. Conversely, chicken breast meat is predicted to fall 5 to 9 percent, according to SpenDifference. This could lead to lower menu prices at companies including McDonald's, Wendy's and Yum! Brands.

Consequently, chicken has taken over the promotional spotlight, including McDonald's Mighty Wings LTO and Wendy's Pretzel Pub Chicken Sandwich. Bloomberg notes that even Pizza Hut will market chicken strips in 2014.

Other commodities

In addition to chicken, the cost of pork bellies is expected to drop 13 percent in 2014, according to SpenDifference. This relief comes after pork belly achieved a record high this year. Other pork items will also see some relief, averaging about a 4-percent decrease compared to 2013.

Beef, due to the growth cycle, will not recover until mid-2015 at the earliest, the report said, with a modest increase of 2 percent in costs expected in 2014.

In addition to the commodities listed above, Seeking Alpha just reported that Arabica coffee prices have fallen to a 5-year low, driven by an abundance of harvests in Brazil and Colombia. This drop has implications for companies such as Starbucks, McDonald's, Dunkin' Donuts and Krispy Kreme.

The cost of wheat is expected to drop 10 percent in 2014. And, the cost of cheese is expected to fall 3.2 percent.

Tips for controlling costs

"Operators need to understand not only their raw material costs but also yields, shrink, labor, packaging, overhead and freight costs," said SpenDifference CEO Maryanne Rose. "Our analysis of food-cost inflation illustrates that menu mix is the critical element in controlling costs. If chain restaurants have flexibility in their menu offerings, one way to combat increases in food cost is to focus on pork and poultry, except for wings."

According to Rose, other steps operators can take to save money include:

  • Because of the predicted drop in wheat prices, look at breads and identify savings.
  • Both canola and soy oil are forecast to increase in 2014. If possible, take coverage at today's levels to add price protection.
  • Take coverage in the front half of 2014 to protect from seasonal increases in the back half of the year for cheese.
  • Draft a food-cost purchasing forecast to identify areas of savings and potential cost increases.

"With many industry experts expecting another challenging year ahead, supply chain management will continue to be extremely important, even with food costs stabilizing," Rose said.

Read more about food cost management.

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