Rising Beef Prices Hit US Fast Food Chains

Posted by: : Paul EbelingPosted on: November 6, 2014 Rising Beef Prices Hit US Fast Food Chains

Rising Beef Prices Hit US Fast Food Chains

US beef prices have climbed in part because of rising demand overseas and droughts in recent years that caused livestock producers to shrink their cattle herds.

The average, YTD price for 81% lean ground beef is 2.18 lb, that is up 24%  from a year ago.

The rising prices have hurt fast-food restaurants that feature beef as the centerpiece of their menus: Burger King (NYSE:BWK) , Wendy’s (NASDAQ:WEN), and McDonald’s (NYSE:MCD) the nation’s 3 biggest burger chains all say they’re dealing with higher beef costs.

But fast-food chains, which sometimes pass along additional costs for ingredients to customers, realize there is only so much people are willing to pay for a burger. So, they are taking other measures to help ease the pressure, such as slashing expenses elsewhere or trying to get people to order other things on their menus.

Alex Macedo, president of Burger King’s North American region, also said the company is pushing chicken more aggressively to offset rising beef costs. This Summer, the chain said it brought back its “Chicken Fries,” which are deep-fried pieces of chicken in the shape of french fries, after “ongoing guest outcries reached a point where they could no longer be ignored.” The dish was introduced in Y 2005 and taken off the menu in Y 2012.

Burger King’s website is currently promoting its Italian Original Chicken Sandwich, as well as a deal for 10 chicken nuggets for $1.49.

Burger King is working with franchisees to reduce restaurant costs as well. Carrols Restaurant Group, Burger King’s biggest US franchisee, noted that its beef costs were up 32% in the latest Quarter from a year ago.

Wendy’s  Thursday announced a plan to cut costs by $30-M to offset challenges, which include rising beef costs.

Spokesman Bob Bertini declined to specify how Wendy’s is adjusting its marketing strategy to deal with rising beef costs. But he said “our varied core menu with many chicken and salad options gives us options.”

To drive customer traffic in the US, McDonald’s said it is working to keep prices down despite its rising costs for beef and other ingredients.

To counter pressures, which include weak sales, McDonald’s CFO Pete Bensen said the company is working with 3rd-party experts to analyze its cost structure, including staffing levels.

That does not  mean fast-food customers will be shielded from rising beef costs entirely.

Chipotle (NYSE:CMG) raised prices nationally by about an average of 6% this past year, with the company citing higher costs for ingredients, including beef. But Chipotle is enjoying strong sales growth and is more confident about its ability to raise prices without scaring off customers.

Companies aren’t expecting higher beef prices to ease up anytime soon.

Feel of the Market analyzes the cattle market, it said livestock producers are just starting to replenish their herds after a drought in recent years, it does not expect prices to ease until Y2017.

HeffX-LTN Analysis for MCD: Overall Short Intermediate Long
Neutral (0.13) Very Bullish (0.52) Neutral (0.04) Neutral (-0.17)
HeffX-LTN Analysis for WEN:  Overall Short Intermediate Long
Bullish (0.26) Bullish (0.30) Bullish (0.44) Neutral (0.05)
HeffX-LTN Analysis for BKW:  Overall Short Intermediate Long
Neutral (0.24) Neutral (0.21) Bullish (0.42) Neutral (0.11)
HeffX-LTN Analysis for CMG: Overall Short Intermediate Long
Neutral (-0.13) Neutral (-0.17) Neutral (-0.03) Neutral (-0.18)

Stay tuned…

HeffX-LTN

Paul Ebeling

 

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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.
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