The (Steep) Cost of Business
There’s no getting away from it: Everyone from executive chefs to moms and grocery store purchasers are feeling the escalation we’re seeing in food prices.
There are increases across the board, and some of them are pretty hefty.
Earlier this month the Food Institute, Upper Saddle River, New Jersey, reported that February 2011 marked the largest one-month increase in 37 years for wholesale food prices, climbing by 3.9 percent.
Thirty-five year high
According to the institute, this is the greatest increase in wholesale food prices since November 1974 when prices jumped by 4.2 percent due to spiraling oil prices.
This latest increase in the Producer Price Index for finished consumer foods is driven by a 49 percent jump in fresh vegetable prices due to freezes and other crop issues in many farming areas, says the Food Institute.
Of the 17 categories the Food Institute tracks on a regular basis, 13 posted increases during February, led by fresh vegetables, and followed by a nearly 10 percent jump in shortening and cooking oil, a 7.6 percent jump in egg prices, a 4.1 percent gain in dairy prices and a 3.2 percent jump in coffee prices.
In fact, global food prices rose for the eighth straight month in February, according a report this month from the United Nations Food and Agriculture Organization (FAO).
And unexpected spikes in oil prices could exacerbate this already precarious situation in food markets, it warned.
The FAO Food Price Index—a measure of basic food prices at the international level—averaged 236 points in February, up 2.2 percent from January, the highest record in real and nominal terms, since the Rome-based agency started monitoring prices in 1990.
The prices of all commodity groups monitored increases again last month, except for sugar.
It’s not just rising gas prices that are to blame. A dry winter in the wheat-growing region of northern China; an increase in demand for ethanol, meaning more demand for corn; increased export of cattle; frigid weather in Florida, followed by wildfires, affecting orange production. Need we go on?
No Optimism Yet
And things aren’t likely to get much better any time soon. According to Hudson Riele, senior vice president of research for the National Restaurant Association: “Certain conditions, including weather and higher energy prices, could certainly continue to affect wholesale food costs, and prices are expected to remain elevated this year. Fresh produce, butter, fats and oils, and flour have seen the largest price increases over the last year.”
Riele adds that we’re unlikely to see prices drop significantly in 2011.
Chefs and restaurant operators know about the food price increases as well as anyone, but what are they doing about them? Restaurant Management takes a look.
Raise prices and watch portion control
owner and founder, Goodfella’s Pizza, Staten Island, New York
“Food costs are affecting us on a daily basis. Commodities have gone out of control. We’ve seen spikes of 400 percent in some produce (especially peppers and lettuce).
“Right now we’re taking it on the chin, hoping it will readjust itself.
“You have to raise your prices every six months and either make new dishes that are more in line, or raise your prices. We’ll raise our prices because we offer a quality product. We do put out discount deals for people who look for those deals. People who look for quality don’t really care.
“I think the big spike in produce was temporary but commodities are really edging up and most key items are up 10 percent so we’ll have to raise our prices by 3 percent or 4 percent or we’re not making any money.
“You’ve also go to watch your portion control and watch your staff isn’t putting too much on a plate, to make sure you’re a proficient operator.
“Keep your inventory low—if kitchen staff think there’s a lot [of food] they’re more free with servings and how much they throw away.”
Incur the costs
managing partner of Madison Hotel and Grill 83, Memphis, Tennessee
We’re a deluxe hotel so we don’t cut costs with the quality of our product. We usually change our menus at least twice a year, sometimes more frequently. When we change them, we cost the menu items and look at the marketplace prices. If the cost of the items go up and we still use them—say steaks for example—we end up eating that cost and don’t pass it on to consumers.
We typically don’t steer away from higher priced items. Our menu reengineering is based on what consumers like. If it’s something that has great presentation and flavors, we cost them. Then we evaluate whether the prices are something the consumers will tolerate or not. We don’t discontinue an item.
Tomatoes became very expensive for a while a year or two ago with the Florida drought, but we didn’t stop using them. We just incurred that cost and things settled down after a while. Those drastic cost increases are usually temporary and don’t last forever.
Offer value with prix fixe
managing partner, Concept Branding, San Diego, California
“We recommend to our clients that they do prix fixe or just some kind of combo so they don't lose people coming in looking for more value. Even if you're Chili's. It doesn't matter if you raise prices so long as the perception of value is there. “
Be a smart buyer
owner of The Pan-American, New York City, N.Y.
“I will not, and cannot, think of putting a lesser product out there—I won’t go from organic chicken to some other kind, or wild salmon to farmed.
“I have also gone as far as to pick up the produce and cut out the middle man—I have purchased a refrigerated van and picked up the produce myself. That takes up a lot of time but a lot of the cost comes in the transportation with the gas prices and so forth.
“You can’t reduce the value of what your guests are having. I sometimes don’t include the starch on the plate but sometimes leaves that as a side order and on the plate is the protein and the vegetable. But I was doing that naturally anyway.
But no way in this atmosphere, this economy, can you reduce your ounces. I won’t go there. I really need to feel that if you’re going to charge $28 for a seared salmon with a vegetable on the side, it’s better to charge $32 and still make the customer feel they’re still getting good value for their dish, than to give them a measly serving and still charge them $28. But I’ve not increased my prices yet.
Leverage your size
corporate director of purchasing for Columbia Hospitality, which encompasses two traditional restaurants, The Dining Room at Salish Lodge & Spa and The Bluff Restaurant & Bar at Friday Harbor House, as well as a number of conference centers, all in western Washington state.
“We leverage our portfolio to maximize the savings for all of our properties. We negotiate with the vendors on our contracts, rebates, standardize product selections, and use our whole portfolio to get the best prices possible.
“We’re going after more deviations and rebates because if we’re using their products, we need further discounts. So if we all use chicken, we need to now go out and get further discounts to further offset the cost of the goods.
“We have contracts that we’re locked into, so vendors can’t pass along the price increases. So that’s the beauty of having a large portfolio like Columbia Hospitality. We lock in for different amounts of time—some contracts are one, two or even four or five years. It depends on the item. Sometimes it’s not to our benefit to lock in for more than a year or two.
“It’s also up to the properties to manage their products correctly—making sure the products are the right ones for that outlet. We have to make sure they’re doing portion control and buying within the season. We alter menus slightly if something spirals out of control in costs—so when the California strawberry crops were really bad and we had strawberries all over the menu, we changed the menu to use a different fruit.
exec chef at Monstah Lobstah, Las Vegas
“I’m shopping the whole country. I’m finding its much less expensive for me to buy my seafood from the east coast and get it shipped—even saving $2 to $3 a pound on my lobsters and I go through about 800 a week so that’s about $1,000.
“I‘ll also go to farmers markets if I have to. If we’re going to stay in the game, we’re going to have to shop around. So it’s going to different distributors, going to the markets myself. You used to be able to call in your order and trust what the distributor sent you but now you have to check prices every day. The 40-hour workweek is now the 100-hour workweek just because of that.
Use a commissary
Sapphire Laguna, Laguna Beach, California
We have started using our commissary kitchen, which we also use to feed up to 2,500 schoolchildren.
Our different chefs send information on what they need, so we now buy our food in larger quantity. We buy produce, milk, legumes and rice, and this stops the truck stopping at four different kitchens and us incurring more costs.
By purchasing in this way we arehoping to knock two to three points off our food cost, which is $80 to $85,000 per year.