Chain Leader

Lane Cardwell

Sign of the Apocalypse
March 12, 2008

In our industry there aren't many things that you can point to and say to yourself, "I didn't know it was that bad". In the weekend Wall Street Journal, however, there was such a sign. We don't usually get a lot of industry press from the Journal, and when we do, it's usually to point out something going wrong. Their March 8 article titled "Cutback Cuisine" was a great example of those outside of our industry noticing our pain.

Last year, wholesale food prices for restaurants increased 7.4% vs. 4% for consumer food prices. The increases are coming from different areas for different reasons. High oil prices drive up transportation costs. Heavier than expected demand for ethanol has caused corn prices to skyrocket and has caused less wheat to be planted as farmers chase the best use for their fields. A weak dollar has caused anything coming from Europe to be pricier (especially olive oils, cheeses, and wines). And for the two of you who use black truffles, the prices have gone from $300/lb. 5-6 years ago, to $600 2-3 years ago, to a current high of $2,500.

The article highlights the many ways that restaurants, mostly independents of all price ranges, are reacting to some of the highest food cost increases in decades. 14 different restaurants or restaurant organizations, from Pink's hot dog stands to Le Cirque, and from New York to Santa Monica, are used as examples of how the industry is surviving skyrocketing costs. The coping mechanisms fall into six different approaches: 

• Portion size reductions on existing items
• Reformulating existing items with cheaper ingredients
• New items from existing ingredients or scraps
• New items with higher profit margins
• Dropping low margin items
• Price increases

 Every chain organization has its own way of handling these cost increases, but the majority of our efforts have usually been on the pricing side. We may not have skilled chefs to formulate new products daily based on favorable ingredient availability, but we do have the ability to leverage our size and our brands. If there was ever a time to scrutinize menus to make sure that every item is carrying its weight, now is it.

As always, the trick in surviving the bad times is to do it in a way that will not cripple us as we enter the good times. Now is the time to be clever, not heavy handed.

Posted by Lane Cardwell on March 12, 2008 | Comments (1)