Restaurant chains ready to pull the trigger on menu price hikes

May 19, 2014

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. The survey included nearly 60 chain restaurant executives and was released this week at the National Restaurant Association Show.

Despite being confronted with higher food and labor costs, 51 percent of the surveyed restaurants made no price adjustments during the first quarter, according to the report. 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,” SpenDifference CEO Maryanne Rose said in a news release. “But once again, the unpredictable nature of the markets reared its ugly head with record high cheese costs and the onset of PED (virus) that is significantly impacting pork. I expect many menus are in the process of being changed, with higher prices appearing soon.”

The survey found chains expect their food costs this year to go up 2.1 percent, which correlates with planned price hikes. Rose said commodity costs are increasingly unpredictable, and a 2 percent jump in menu prices may not even cover this year’s uptick in food costs.

In Q1, chains reported an average 1.5-percent increase in food costs.

A greater percentage of QSR 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).

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).

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 were of less concern, with 31 percent attributing price increases to them.

Seventy-seven percent of respondents said menu price hikes are intended to cover higher minimum wage and labor costs, compared to 57 percent for all chains.

Topics: Food Cost Management, Operations Management, Trends / Statistics

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