With commodity price inflation forecast to hit food commodities ranging from hogs to ground beef, the restaurant business may soon find itself faced with the dilemma of either raising prices or skimping on portions. A recent WSJ article that I came across highlights the particular challenge the fast food business faces. The story begins by noting, “Ground-beef prices are nearing a record after a sharp rise in recent months, potentially eating into burger-chain profits. Wholesale prices for 90% lean boneless beef were about $1.63 a pound in the week ended April 9, up more than 32% from last year’s low in November, according to Agriculture Department data, and near highs hit in 2008.” Compounding the challenge is the timing of inflationary pressure with their customer’s ability to spend: “With consumer demand for fast-food meals damped by continued high unemployment, chains have found themselves with less leeway to raise prices to compensate for increases in ingredients prices.”
In Spend Matters view, rather than raise prices, fast food restaurants would be well served to take advantage of higher prices much as CPG providers and retailers have been able to latch onto “green” as a way of providing inferior packaging that increases margin. Much like new water packaging formats that cost the same (for the consumer) as previous plastic bottles, but use up to 25% or more less resin…
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