Foodservice Equipment Reports

Wholesale Food And Menu Prices Rose Again In November; Expect More of Both in 2012

Unfortunately, the one-month moderation in October of increasing wholesale food prices—and overall producer prices—didn’t hold. Wholesale food prices at the “finished” stage jumped another 1% in November, according to data from the Bureau of Labor Statistics’ Producer Price Index. And prices at the “intermediate” and “crude” stages also rose, 1.9% and 0.5% respectively, after falling in October. All the numbers reflect month-to-month changes. The overall Producer Price Index was up 0.3% and now stands 5.7% higher than 12 months ago, on a seasonally unadjusted basis.

On the consumer side, the trend of food-at-home prices increasing faster than food-away-from home prices was reversed in November. Prices at grocery stores and other retail outlets fell 0.1% last month versus October while average menu prices increased 0.3%. Still the seasonally unadjusted change for the 12 months ending November was 5.9% for food-at-home prices versus 2.9% for food-away-from-home. Many observers expect operators to take advantage of this gap by being a bit more aggressive with price increases, especially in light of continuing wholesale-food-price increases.

Both the U.S. Department of Agriculture and an outlook from ratings agency and research firm Fitch Ratings expect more of the same for 2012. The USDA forecasts another year of wholesale- and retail-price increases. While the department expects a slowing of the ’11 trend of double-digit increases for most proteins other than chicken, the agency does predict continuing price increases in the 5% to 10% range. And chicken, the one protein that hasn’t seen big increases this year, is expected to move in the opposite direction, though still at a slower rate of increase than red meats.

Fitch, in an outlook report on U.S. restaurants cited by QSR and verified on the Fitch website, predicts overall food and beverage prices will continue to increase by at least 5% in ’12, driven once again by increases for proteins. But the Fitch report also notes big chains have been very adept at managing their pricing and menu mixes to minimize margin erosion and says there is little pressure on labor costs in the U.S. Combined with a Fitch forecast of 2% to 3% in same-store sales growth in the U.S., the research group foresees a decent profit picture for U.S.-based operators.

On the other hand, labor and food costs in China--very important markets for Yum! Brands, McDonald’s, Starbucks and other worldwide chains--have been rising by double-digits, though Fitch predicts some slowing of the increases in China in ’12. Overall, Fitch sees a stable margin situation for most big worldwide restaurant chains.

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