franchipedia
articles
blog
podcasts
newswires 
forums
calendar
toolsSurge of Commodity Prices
Soaring commodity prices are increasing restaurant operation costs, digging deeply into profits. Gasoline is pushing $4 a gallon in a number of markets and food prices continue an upward trek affected by supply, demand and the U.S. dollar that buys less and less on world markets. Restaurateurs are paying the price.
"The high cost of wheat has been taking a chunk out of profits at pizza maker and bread makers, while high soybean prices have helped lead to lower profits at meat producers. Soybeans are used to make animal feed so when prices rise, farmers must pay more to keep cows, chickens and pigs fed." - Associated Press
The price of wheat and soybeans fell this week, at least briefly, offering a bit of hope to food companies who have struggled to pay far higher costs for the ingredients needed to make their goods. The price drop was mainly due to "speculators leaving the market after the dollar gained against the euro."
Then there was the recent run on rice, where prices spiked and bags of rice had to be limited at warehouse grocery outlets.
"Some Costco and Wal-Mart-owned Sam's Club stores have begun limiting purchases of premium varieties, such as Thai jasmine and Indian basmati, in response to panic buying from individual shoppers and restaurant owners." - BusinessWeek
Shortages are taking place around the world as poor countries take action to ban exports that fetch premium prices in the world markets in order to first feed their own. BW continues:
"Countries such as India and Vietnam, the world's No. 2 and No. 3 rice exporters, have imposed limits or outright bans on rice shipments in order to shield their populations from the effects of soaring food costs. That in turn is hurting net importers of the grain, such as Iran and the Philippines. On Apr. 15, the Philippine government tried to buy 500,000 tons of rice in the global market but managed to get only 320,000 tons. The news sent shock waves through the wholesale markets."
One independent restaurant owner exasperatedly declared, "My customers are crunched for cash, limiting my ability to lift menu prices. I have food costs that in some cases are three or four times what they were last year. Frankly, I may not be able to survive these soaring prices. Some of my friends who own a restaurant are looking to get out of the business. This is a very tough market."
Value Food Items
One of the things that small business restaurateurs can do in coping with this environment is to watch the franchises. Case in point is Denny's, who recently saw earnings increase despite soaring food costs.
This past quarter it focused on promotional items that offered value to consumers but that were are also designed to benefit food cost margins.
Traveling Down? Remote Ordering
With travelers cooling their jets, another way to cope with increased energy costs is to make it easier for customers to order. The chains have been smartly exploring systems allowing consumers to order food remotely and electronically via text messages and Internet-capable mobile devices.
Watch the pizzerias. When these small businesses are able to tap into the SMT ordering systems that their big brothers are now pioneering, then independent restaurateurs can expand latent business. The chains are just beginning to use these technologies though so it may not be available to the small business owners during this down cycle.
When things look bleak
More people will be out looking to buy themselves a job. Franchising will escalate. When people are down they really want to believe in the dream of many scam artist. We need to inform people what is going on, so they can protect themselves.
As more and more people get reeled into bad franchises and I believe bad zors will be working over time to take from people who have worked all their lives, making them poor and them even more wealthy.
We really need to do something to protect our middle class. There is more people in the middle class. The more money for the middle class to spend the more the economy is stimulated. Unless we want to become like Mexico where you will see a real nice house among cardboad houses. The have and have nots.