You know this from personal experience, or you just taking obsolete "accepted wisdom" as gospel-writ?
Perhaps this is news to you:
LOOK: Nation's Restaurant News
Oct 18, 2004
Food price inflation: the perfect storm for distributors, operators
By Caroline Perkins
According to the IFMA 2004 Forecast Outlook report, foodservice sales are projected to grow 2.6 percent in inflation-adjusted, or real, terms in 2005. Furthermore, operators surveyed by Chicago-based Technomic for the forecast say same-store sales are up, and the industry appears to be recovering.
Coupled with that optimism, however, is the prediction that profits will grow by only 1 percent next year because margins are being squeezed by the rising costs of doing business. So what else is new?
Well, the significant effect of food cost inflation for one. Increases in the costs of insurance, health-care coverage, fuel and labor have been exacerbated by hikes in the cost of food from producers at an across-the-board rate of 6 percent to 7.5 percent.
For instance, the U.S. Department of Agriculture's August numbers showed a 16-percent increase in the price of beef since 2003, along with increases of 17 percent for poultry and 13 percent for dairy items.
For many years the conventional wisdom has been that distributors were not able to raise prices because their operator customers could not or would not raise menu prices. That scenario is history.
At the most recent IFMA Forecast & Outlook Seminar, Technomic revealed that now, unlike last year, when labor was the issue, the cost of food is the top concern among operators. Seven in 10 operators surveyed said costs are rising significantly. Two-thirds had raised menu prices an average of 4 percent in the last six months, and close to half expected another hike of 3 percent in the next six months.
As for manufacturers, Technomic reported that a big part of its sales growth has been a result of price increases. Real sales growth has not been robust. Nearly eight out of 10 manufacturers raised prices to distributors by an average of 6 percent and expect additional increases in the future. In fact, prices have risen so rapidly that some distributors say it is hard to keep up with pricing changes in their systems.
There are two ways to fight food cost increases: by trading down to lower-priced substitutes or by cutting costs elsewhere to meet the increases. However, there are Catch 22s throughout the supply chain with both of those solutions.
While distributors can work with customers to come up with lower-priced menu solutions, many operators are locked in by their own success. A steakhouse still has to serve steak, and chains have to offer their traditional menus or risk losing patrons.
The seriousness of the impact of food inflation on distributors was illustrated by Sysco's fiscal-year-end results. While sales and earnings had increased, sales were softened by "prolonged product inflation of 6.3 percent." The problem with experiencing both fuel- and food-cost inflation simultaneously is that both directly affect the profitability of distributors and operators.
The only logical solution is to increase revenues. Let's hope same-store sales keep going up despite recent dips in consumer confidence and disposable personal income.
Of course, consumers are affected by rising costs as well, especially in the price of gasoline. Technomic reported that 66 percent of consumers are driving less, and 68 percent are cutting spending elsewhere. Seven in 10 are spending less when they eat out. Higher-priced menu items won't be incentives to increase customers' number of dining experiences.
As Technomic's Bob Goldin noted: "Operators and distributors are facing the perfect storm relative to cost pressures. The only positive sign is that business is reasonably robust. [Increasing sales] is the only solution."
Even from personal experience I noticed an increase in beef prices. But that may be attributable (and was attributed by some) to the low-carb craze, which increases demand.
The overall inflation, which includes food, is very low. And the food component also experiences low inflation. Spikes here and there are uninformative.