Rising Food Prices
Posted on March 5, 2011
Restaurant owners, grocery store managers, consumers, anybody who’s paying attention when the buy food has noticed that food prices have been increasing over the last couple of years, and the trend isn’t slowing. The USDA expects food prices to jump between three and four percent this year. (Source)
What’s Causing The Price Increase?
If you listen to the news, there are a handful of reasons for the rising food prices.
- Increasing Demand. Worldwide there are just more mouths to feed. Also, countries like China and India are seeing more young middle-class people moving from the agricultural regions to the cities. This is decreasing agricultural production, thus increasing food demand.
- Bad Weather and Crop Damage. Russia, Mexico and The United States have all seen funky weather patterns (like freezing temperatures in Texas) during the last growing season that has damaged crops. As a result, there is just less food to go around.
- Civil Unrest and Rising Fuel Prices. Naturally, any time anything goes wrong in the Middle East, gas prices are scared up, and things have been pretty unsettling over there lately. Most of the riots are about high food prices and the people wanting to oust cruel dictators. Either way, when gas prices increase the price for harvesting, packaging and transporting food increases, so food prices have to go up, too.
- Biofuel. As gas prices go up, so does the market for alternative fuel sources, and ethanol is leading that pack these days. Ethanol is made from corn, so some of the corn crop is being diverted to make cheaper gas, leaving less to eat. As a result, the price of corn is at an all-time high, and corn is used in pretty much everything we eat.
- Weak Dollar. This is probably the one cause people don’t want to think about. Simply put, the dollar doesn’t have as much purchasing power as it did a decade ago; it isn’t worth as much. The increase in food price (and other goods) could just be a result of the weakening dollar, and there are fears that it will just get worse.
What Can Restaurants Do?
Unfortunately, when faced with increasing food prices, there isn’t much restaurant owners can do except rise prices to help offset the cost and still make a profit. Sure, when the economy started to tank three or four years ago, a lot of restaurant owners took a noble approach by absorbing the costs in order to keep menu prices reasonable. But, the recession lasted a lot longer than anyone anticipated. With food prices still on the rise (despite economists saying the recession is over) can restaurant owners really afford to keep absorbing the cost and stay in business?
The answer to that is big resounding “No!” Looks like it’s time to start passing some of the cost along to the customers. However, before you jump head first into marking up items, there are a couple of tips for raising prices on your restaurant menu that you’ll want to follow in order to prevent sticker shock, because passing on the buck only works if customers are coming through the door.