Food Prices Continue To Rise, Putting Pressure On Operator Margins

Rising food and gasoline prices are continuing to worry operators. McDonald’s last week said it may have to raise some prices to cover the increase in commodity costs. At a time when customer demand is still weak, the higher costs are putting operators, reluctant to raise prices, in a bind.

The Bureau of Labor Statistics said wholesale food prices at the “finished” foods level rose 0.8% on a seasonally adjusted basis in December, following a 1% jump in November. The National Restaurant Association said the increase for all wholesales foods was 1.1% in December on top of a 1.3% increase in November.

While inputs are rising, operators are still constrained from raising prices by weak consumer demand. The spread between wholesale prices and menu prices tells the story. The NRA said average wholesale food prices rose 4.9% in 2010, following a record-tying 3.8% drop in ’09. But menu prices, part of the BLS’s Consumer Price Index, were up only 1.3%. NRA said it was the smallest menu-price increase since 1955, when prices rose only 0.9%. Grocery prices rose 1.7% last year, slightly higher but still very restrained.

Meanwhile, gasoline prices also continue to rise, a result of higher crude-oil prices and refinery outages. The average price of a gallon of gas hit $3.11 in the week ending Jan. 24. That’s up $.405 since a year ago. Gas prices exceed $3 a gallon in all regions of the country except the Gulf Coast and the Mountain states. The Thomson Reuters/University of Michigan Surveys of Consumers blamed the gasoline price increase for a dip in the preliminary Consumer Sentiment Index for January, released Jan. 14. A rise in gasoline prices typically has a negative impact on foodservice sales, which is what operators fear will happen this time around.