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Food costs continue to heat up
By Chris Elliott
October 4, 2011
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According to CRFA’s Restaurant Outlook Survey for July and August, more than seven out of 10 operators (76%) say that rising food costs are hurting business. These respondents also saw an average increase of 5.4% in food costs over the two months. As a result, half of restaurateurs expect to raise menu prices in the next six months.
Which foods are getting more expensive?
The need to increase menu prices is not much of a surprise given food costs continue to spike higher. In August, Statistics Canada says food prices at grocery stores were 5% higher than a year ago. Like many operators, households across the country are feeling the pinch of higher costs for many food basics. Over the past year:
- Rising flour prices led to a 9.3% hike in bread prices;
- egg prices increased by more than 11%;
- fresh vegetable prices are up 8.7%, due in part to an 18.4% spike in the price of potatoes;
- coffee and tea prices jumped 13.7%; and
- meat prices climbed nearly 6%.
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What’s causing the price hike?
Several factors are driving up food prices. The culprits include:
- growing global demand for food from emerging economies in Asia and South America;
- bad weather, which has reduced overall production for some crops; and
- Rising input costs, such as fuel.
These factors partly account for the recent surge in food prices, but aren’t entirely to blame. Investor speculation is also responsible – large investment banks are now speculating in derivatives based on food commodities, causing volatility in short-term food prices.
What can operators expect?
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So far, restaurant operators are holding the line on food prices. Statistics Canada data show that menu prices increased by 2.7% in August compared to a year ago. Menu prices have risen 2.8% at full-service restaurants and 2.7% at quick-service restaurants. Given the industry’s razor-thin profit margins, many operators will pass on higher food (and labour) costs to consumers. With the current economic uncertainty, operators will also have to determine how much cost-conscious consumers can absorb.
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