Restaurants cope as beef prices rise
When the board of the Iowa Hospitality Association, the state affiliate of the International Restaurant Association, convened for its November meeting, most discussion centered on the rising cost of beef and how members could retain profits without angering customers by boosting prices of beef dishes.
As the holiday season, typically the busiest time of the year for restaurants, fast approaches, it appears as though owners and managers are answering that debate through a sort of compromise, raising prices for beef entrees slightly while also pushing non-beef items that might carry a higher profit margin.
“They’re very creative when it comes to finding ways to absorb these cost increases without having to raise prices,” said Doni DeNucci, president and chief executive of the Iowa Hospitality Association. “They hate to do it (raise prices), especially going into the holiday seasons when a lot of their customers have holiday parties. It sends a negative message.”
An unusual number of factors have aligned to push beef prices higher, including mad cow disease in Canada, droughts in parts of the Midwest and Great Plains and a surge in meat consumption brought on largely by the popularity of the Atkins diet. And despite prices that have hit record highs, demand continues to rise. The resulting paradox is that restaurant owners, fearful of upsetting customers, have been reluctant to raise prices to match increases in their costs, and profits are being squeezed.
“It’s not good,” said Dustin Kupka, a manager at Rube’s Steakhouse & Lounge in Waukee, where customers choose their steaks then cook their food themselves on huge charcoal-fired grills. “All year, prices have been gradually going up. So we just kept taking the hit. We’re not going to replace quality for a price.”
The higher prices do mean good times for cattle ranchers, who are slaughtering their cattle more quickly than they have in past years. As a result, cattle are not being fattened as long and there is a growing scarcity of choice and prime cuts of beef, particularly rib-eye and T-bone steaks.
“It’s getting harder to get the prime,” said Robert Roush, who for a year has owned Jesse’s Embers on Ingersoll Avenue.
Roush raised prices at Jesse’s by $1 to $2 per entrée about a month ago, not enough to cover beef prices that have gone up 25% percent he said. His restaurant spends about $2,000 per week on beef. The menu price increases, however, haven’t hurt demand, and Roush said customers haven’t complained.
“We tried to keep what we could at what we could, but we had to raise prices,” he said. “I really thought there might be a backlash, but it hasn’t been a problem.”
At Rube’s, famed in part for its 54-ounce Belly-buster,” managers have had an increasingly difficult time procuring steaks that large and haven’t been willing to keep very many on hand in its coolers because of the risk that they may not be ordered.
“We can’t have as many lying around because they’re so pricey,” Kupka said. Customers who successfully eat a Belly-buster earn themselves a T-shirt and their picture on the wall. In some cases recently, the steakhouse has had to offer customers who are daring enough to attempt the feat two smaller steaks.
To boost their bottom lines, restaurant owners are offering dishes such as pasta or fish that might carry higher profit margins.
Rube’s, which has raised its prices for beef by 8-10 percent, has started offering shrimp, chicken and catfish.
“We’re trying to get more of a price point so people who do come in and can’t afford a steak, they can get something else,” Kupka said. “These are things we’ve never done before.”
Jeff Vaassen, who owns the Culver’s franchises in Ankeny and Des Moines, hasn’t touched prices for hamburgers at his restaurants. Instead, he raised the cost of a so-called value basket, which includes a sandwich, a side dish and a drink, by 10 cents about six months ago. The move was suggested by Culver’s corporate office, Vaassen said.
“It does help recover some of our costs,” he said. “We’re trying to be more proactive in respect to the price of beef.”
RECORD PRICES FOR BEEF
Last month, cattle were selling for 90 cents to $1.15 a pound, above the 85-cent high set 10 years ago and as much as 40 cents above last year’s prices, according to a recent story in The New York Times.
In response to the high prices, and fearful that they may not last, many ranchers are slaughtering their cattle, including their breeding stock, sooner. The smaller herds could mean that the number of cattle won’t rise for some time.
The Department of Agriculture’s Economic Research Service said in October it expected this year’s calf crop, estimated at 38 million head, will be the smallest in a half-century.
Retail prices, as a result, are likely to continue on their record-setting path, the Economic Research Service reported.