Off The Menu: Tough stretch for restaurants may be ending

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(AP)

The last 18 months or so have been brutal for restaurant bottom lines. Food costs rocketed upwards as weather, disease, and market forces disrupted production of major agricultural commodities; most in the industry found it necessary to react by tweaking menus and raising prices.

However, the outlook for restaurant raw materials has changed markedly since the start of the year. The worst of the avian flu outbreak seems to have passed; egg and chicken prices are falling as a result.

Beef prices, which several times reached record highs over the past three years, are now trending downward as cattle production rebounds. Experts thus predict that the cost of beef will drop anywhere from 10 to 20-plus percent by the end of 2016. Chicken and pork prices are expected to drift downward as well, and key commodities such as corn and wheat have been trending lower on futures markets.

While these favorable price changes are good news to restaurant operators everywhere, they also present a challenge. During the two-year cost run-up that the food service industry experienced in 2014 and 2015, many restaurants and restaurant chains responded by hiking menu prices, typically doing so at twice the rate of inflation or more.

Now that food costs are trending downward, there's a fear that consumers may be displaying some resistance to these higher prices. A number of observers have linked "flat" restaurant sales over the past several months to past menu price hikes. Customers, this line of argument suggests, see costs at the supermarket leveling off and are starting unfavorably compare dining out and the cost of eating at home.

Restaurant owners, on the other hand, are reluctant to cut prices, preferring to enjoy the newly favorable spread between costs and revenues. They'd prefer to keep their current price structure in place, not only to enhance profitability, but to also serve as a hedge against possible forthcoming hikes in the minimum wage.

Hugh Robert is a faculty member in Holyoke Community College's hospitality and culinary arts program and has over 40 years of restaurant and educational experience. Please send items of interest to Off the Menu at the Republican, P.O. Box 1329, Springfield, MA 01101; Robert can also be reached at OffTheMenuGuy@aol.com

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