U.S. restaurant operators squeezed by rising food costs, but most loathe to raise menu prices for fear of losing customers following severe drought that damaged crops; food prices likely to rise 3% in 2012, following more than 8% increase in 2011

Nevin Barich

LOS ANGELES , August 7, 2012 (Industry Intelligence Inc.) – U.S. restaurant operators are being squeezed by rising food costs, but most are loathe to raise menu prices for fear of losing customers following a severe drought that damaged crops, US News reported Aug. 6.

Food prices are on track to rise 3% in 2012, following an increase of more than 8% the previous year.

National Restaurant Association Senior Vice President of Research Hudson Riehle noted that restaurants eliminated a majority of cost inefficiencies in order to weather the recession. This leaves them with fewer options to try and maintain their bottom lines as they face additional pressures.

For now, restaurants are largely resisting price hikes.

While the restaurant industry is on track to hit US$632 billion in sales—the highest level ever—rising food prices could potentially cut into future sales.

Over the next several months, prices for chicken, beef and pork will likely surpass their previous record highs, according to analyst expectations. An expected influx in the amount of cattle sold for slaughter because ranchers are having trouble feeding their stock could potentially help blunt beef price increases over the next several months.

However, this influx could lead to higher prices over the long term because of the decline in the domestic herd. Market Vision Inc. President and Commodity Analyst John Barone said that beef prices might not fall until “as far out as 2015.”

The primary source of this article is US News, Washington, D.C., on Aug. 6, 2012.

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