The Squeeze

We all know it is coming, but no one is talking about it. It is the proverbial elephant in the room. Inflation. There, I said it. In writing.

In the produce world we know the effects of drought conditions on overall pricing. The current estimates are 6-8% increases over last year’s market. It sounds relatively minor, but when considered in the larger picture it is part of a squeeze on food costs.

The proteins are all facing much higher increases. Ground beef is up 76% from 2009 while the herd is at it lowest head count in 6 decades. It can take years to rebuild the cattle supply, so we are looking at sustained increases in costs. The Bureau of Labor Statistics said that ground beef at U.S. Supermarkets averaged a record $3.85 per pound in May.

Restaurant operators are faced with raising menu prices at a time when business is just starting to gain some momentum. The supply chain has been wrung dry with efficiencies and doesn’t have any concessions to give at this point. Growers are working on razor thin margins, wholesalers and processors are facing increased costs with minimum wage increases and health care mandates. Distributors are bankrolling the restaurants with increased terms which could lead to default losses.

I really don’t mean to sound so gloomy. What is important is that we all recognize what is happening and take steps to control what we can. The worst thing possible is that customers stop spending; we can live with a cutback, but a cutoff is devastating.