Restaurants can expect beef prices to keep rising

Beef prices hit an all-time high last week, topping the U.S. Department of Agriculture’s previous record set in 2003 — and prices will only continue to rise, according to commodities experts.

According to several consumer media reports, the price jumped to more than $2.11 per pound for choice-grade beef last week. In dollar amount, it was a record.

However, when adjusted for inflation, the price was hardly a record, said Richard Volpe, a research economist for the food economics division of the USDA.

“It’s not that anything particularly notable has happened in the past month or the past week,” Volpe said. “We are in a long-term sustained inflation for beef and veal prices.”

That puts restaurateurs in essentially the same position they were in last year, when drought caused beef prices to spike, said John Barone, president and commodities analyst at Market Vision Inc. Inflation is likely to continue through 2016 or possibly 2017, he said.

“There’s nothing unexpected about what happened this spring,” he said, adding that until last month, beef prices had been relatively stable through the inaugural months of 2013.

One issue for restaurateurs, Volpe said, is that menu prices aren’t rising in step with the rate of inflation for beef prices. “This probably means that the margins for those foods have shrunk more in the restaurant industry than at the supermarket,” he said.

“It’s not that anything particularly notable has happened in the past month or the past week,” Volpe said. “We are in a long-term sustained inflation for beef and veal prices.”

The upward trend means that for the next five years or so, restaurateurs will have to manage beef costs through strategic marketing of non-beef proteins and making smart agreements with suppliers.

“The beef cycle is at least two to three years,” Barone said. “Between gestation and planning, it might be a year to get those new cows born,” and then they have to grow up before they’re ready to go to market. In other words: The beef situation won’t change anytime soon.

Still, he said, there are some strategies restaurants can take to deal with the sustained inflation of beef prices.

“Unless you’re locked into beef as a protein, you’re going to see what has happened very successfully in our industry: People will continue to engineer their menus to take advantages of proteins that offer their customers better value,” Barone said, adding that chicken breast and pork are still both relatively cheap compared with beef.

“As a result, high prices do what they were meant to do,” he said. “They temper demand.”

Lee Plotkin, president at L.P. Enterprises Inc., a Texas-based hospitality purchasing consulting company, said restaurateurs have been successfully promoting non-beef items for some time. Even steakhouses, he said, can push seafood options or cheaper cuts of beef to help close margins without increasing menu prices.

“Some restaurants are using game that they can promote,” he said. “That is very interesting to people in certain parts of the country.”

Plotkin said it would be wise for restaurateurs to keep close working relationships with their suppliers. He noted that it’s also important for operators to keep in mind that selling beef at a fair price is also in the best interest of suppliers — they need to sell more beef to retail and restaurants, too, despite the inflationary market.

“Nobody knows what’s going to happen this summer with droughts or corn prices and feed,” he said. “Unfortunately, we don’t have a crystal ball. It behooves them to stay in really close contact with that supplier.”

It’s also important for restaurateurs to be hands-on with their suppliers, making sure that the measurement specs for each beef cut (for example, a 10-ounce tenderloin) are as accurate as possible to avoid waste. “Those things can really help if they’re willing to go back and work with their partner on tightening those down,” Plotkin said.

Plotkin added that restaurateurs can also adjust to rising beef prices by cutting back in other areas, such as packaging. “I always say evaluate your business; look at all the different categories,” he said.