Prices of milk, beef, coffee, cocoa and sugar have gone up recently and restaurants are raising their prices to make consumers bear most of the cost. However, this could cause problems for the restaurant industry because of the position many consumers are in. With high unemployment consumers have found ways to save extra cash by not going out to eat as much, or buying generic brands.
Cheif executive of Stater Bros. Market, a grocery store chain in California said, "The big challenge will be, how much can we swallow and how much can we pass along?" Recently, cereal prices for Stater Bros. has risen 5%. They dealt with this increase by passing half the cost onto consumers, by rising the prices they pay, and by bearing the other half of the cost by cutting other expenses.
Starbucks has decided to leave the costs of their coffee the same, to keep from losing supporters of their main product, but to rise the prices of other harder to make drinks. Kraft, General Mills, and Safeway have decided to pass the rise in prices on to the consumers.
Foood prices are rising faster than overall inflation. The CPI (consumer price index) for all items minus food and energy had risen 0.8% up until September. The Bureau of Labor Statistics has recorded this as the lowest 12-month increase since 1961. However, the food index rose 1.4%. It is predicted that overall food inflation will be at about 2% to 3% next year.
If overall inflation does not begin to rise more sharply then I think the restaurant industry is going to take a huge hit. They will not be able to put a 2% to 3% rise in prices on consumers within the next year. They will have to take some of the burden and cut their costs just as Stater Bros. Market has done. Otherwise, consumers will find the cheapest prices and resort to them if they have to.
http://online.wsj.com/article/SB10001424052748704506404575592313664715360.html?KEYWORDS=restaurant++industry
I also agree with you...even though the restaurant industry is experiencing a slight turn around due to a change in the economic climate, I do not believe companies will survive with a 2-3% rise on consumer prices over the next year. The article states that some companies have passed half of the rising cost onto consumers while taking on the other half, or have raised the prices of their less-demanded or more difficult products. I think this will work for a short period of time. There is only a certain amount of operations/people a company can cut back on and raising the price of a less-demanded will not lead to sufficient revenue or profit because the demand of the project is subordinate to the other products. I suppose it is easy to criticize what these companies are doing but I cannot think of a better alternative either.
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