News Column

FAST FOOD: Restaurants raising prices as beef, dairy costs soar

June 16, 2014

By Nancy Luna, The Press-Enterprise, Riverside, Calif.



June 16--Start reaching for your spare coins because your fast-food bill is going up this summer. Facing unrelenting commodity cost increases, chains such as Chipotle Mexican Grill and In-N-Out Burger are raising menu prices on everything from burgers to steak burritos.

In-N-Out's iconic Double-Double is $3.45, up 15 cents. Hamburgers and cheeseburgers went up 10 cents each, and drinks -- a high-profit-margin item at most restaurants -- increased 5 cents, the chain said.

The increases, which began May 19, come a little more than a year after a previous jump in menu prices.

"We make every effort to keep our menu prices as low as possible," company executive Carl Van Fleet said. "Unfortunately, we have seen some pretty significant cost increases over the last year, and we had to take a small price increase in order to maintain our quality standards."

Chipotle, a pioneer in the fresh-Mex segment, is also preparing to raise prices -- roughly 5 percent on items such as steak burritos ($7.40) and chicken salads ($6.70).

The price hikes come as restaurant operators continue to be challenged by soaring costs on core ingredients such as produce, beef and dairy. In April, food costs jumped 2.7 percent, the highest increase in more than three years, driven by an 8.4 percent increase in meat prices.

"All the high-usage items are at historic highs right now," said Russ Bendel, chief executive of The Habit Restaurants.

The company, which operates 92 Habit Burger Grill restaurants, has not raised prices in three years. But with ground beef and chicken prices up 20 percent to 25 percent compared with last year, Bendel said, he's considering a "moderate" bump this summer.

"We're holding off," he said. "We don't have a specific date to change prices, but we are looking at it."

Small operators are also getting hit hard, including Pink's franchisee Dale Smith. He runs two mobile hot dog stands, including the food cart that sells the famous Hollywood frankfurters at the OC Fair and the San Diego County Fair. As fair season gets underway, Smith said he's facing a 50 cent-per-pound increase on the Pink's proprietary 9-inch beef dogs. .

"All the meat products are going up," Smith said.

Though he's getting hit by various costs, he said, he's keeping his fair prices the same -- between $5.70 and $10 per dog.

"We're going to absorb" the costs, he said.

But market research company IBIS World said volatile commodity costs are hard for most quick-service restaurants to absorb for a long period of time.

"Cost controls are important in this low-margin industry," IBIS World said in a report on the fast-food industry. "Typically, an operator's major costs are food and beverages purchased for sale and wages paid, and if these are not managed skillfully, an operator's profit margin will take a hit."

Dunkin' Donuts, which has three locations in California and five more opening later this year, is anticipating a price hike, too.

"Based on rising commodity costs, we expect to see a modest increase in coffee prices," spokesman Justin Drake said.

Bigger seems to be doing better, with mega-chains such as McDonald's and Taco Bell faring well by leveraging their buying power or offering meal deals to get diners in the door.

A representative for McDonald's restaurants in Southern California could not say if local restaurants have raised prices. Pricing is up to "individual owner/operators," according to the McDonald's Operator's Association of Southern California, which includes 444 McDonald's in Los Angeles and Orange counties.

However, some restaurants are temporarily lowering prices through "best value" specials, the organization said. Some of the participating 600 restaurants in Los Angeles, Orange, Riverside, San Bernardino and Ventura counties are offering "buy one, get one free" Big Macs after 9 p.m., the same deal on McCafe specials from 2 to 5p.m., $15 meal bundles and $1 drink specials.

Taco Bell also said that pricing at franchisee-run restaurants can vary. However, the chain has the advantage of leveraging its "global purchasing" power to keep commodity prices in line, company spokesman Rob Poetsch said.

"Value is a big part of our heritage and is important to our consumers, particularly today," the spokesman said. "So we review and adjust our pricing periodically in order to retain and increase our value leadership for our customers while maintaining profitability for our franchisees and shareholders."

The Associated Press contributed to this report.

Contact the writer: nluna@ocregister.com

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(c)2014 The Press-Enterprise (Riverside, Calif.)

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Source: Press-Enterprise (Riverside, CA)


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