Battered U.S. Restaurants Prep for Pricier Beef, Supply Squeeze
Battered U.S. Restaurants Prep for Pricier Beef, Supply Squeeze
(Bloomberg) --
As if the Covid-19 shutdown wasn’t enough, restaurants have another problem to add to the list: surging meat prices.
With major beef and pork manufacturers shutting down plants across the Americas due to ill workers and a lack of employees, prices are rising as supplies are squeezed and restaurant chains are making backup plans. Fazoli’s Restaurants, for example, plans to swap in poultry, which has seen more price stability, if supply tightens for ham and salami.
“We’re expecting prices to go up” for proteins, said Chief Executive Officer Carl Howard. “As it relates to deli meats, we already have a backup plan if we have to go without. We can easily put in a chicken parm instead.”
Fazoli’s relies on both Tyson Foods Inc., the biggest U.S. meat company, and Smithfield Foods Inc., the world’s No. 1 pork producer, for supply. Smithfield, Tyson and JBS SA, the world’s top meat company, have all had to shut plants across the U.S. because of virus outbreaks among workers. Executives from the three companies have also warned that meat shortages are likely.
President Donald Trump plans to order meat plants to remain open despite the pandemic, declaring them critical infrastructure as the nation confronts growing disruptions to the food supply, a person familiar with the matter told Bloomberg News on Tuesday. The order will affect all processing plants supplying beef, chicken, eggs and pork, the person said.
‘Tough Scenario’
The dining industry is already struggling with more than a month of decimated sales. The latest data, for example, show that same-store sales fell 83% at casual-dining chains and 34% for fast food in the last week of March, according to industry researcher MillerPulse. Bloomberg Intelligence analyst Michael Halen says April results are likely similar. Many chains have already delayed rent payments, cut spending on new locations and slashed executive pay, among other measures.
“It’s a tough scenario for restaurants, for sure,” Halen said. “Beef and pork prices rising, possible supply constraints coming, and a recession are a bad combination.”
Restaurant supplier U.S. Foods Holding Corp. says beef plants have cut production due to Covid-19 and that prices are headed up.
“There have been multiple protein plants temporarily shut down or running at some percentage of full capacity due to the pandemic,” the company said in its April 24 Farmer’s Report. “Coupling this information with the low harvest numbers, the sense among analysts is that supplies will be tight over the next few weeks, leading to higher prices.”
Disruptions at slaughtering facilities as workers fall ill to Covid-19 are unprecedented and have tightened the fresh meat supplies. This may cause shortages across restaurants and grocery stores. U.S. wholesale beef prices surging to a record. Pork prices have also jumped.
“Beef, pork and chicken supplies are likely to get even tighter in the coming weeks,” said David Maloni, executive vice president of analytics at restaurant technology company ArrowStream. He said that ground beef and chuck used to make burgers are particularly in short supply now and pork may be next.
In anticipation of this, restaurants are talking to vendors about their supply chains. Jersey Mike’s Franchise Systems Inc., a sandwich chain with 1,750 stores across the U.S., last week said it was particularly worried about getting enough ham and is bulking up inventory. The company is working with supplier Clemens Food Group to make sure it had enough for its Italian and club sandwiches.
Possible Improvement
Part of the dining industry says they are starting to do a little bit better as consumers venture further from home after a month or so of shelter-in-place orders. Sales have been marching upward for Salsarita’s Fresh Cantina since an initial 60% decline in March, CEO Phil Friedman said, adding they’re now down just 40%.
The chain hasn’t seen higher prices or shortages for chicken, which is its top-selling protein. But the company is ready to make meat substitutions on its menu if necessary, he said.
Bloomberg Intelligence analyst Jennifer Bartashus said there’s some disruption in meat production, but supply is still available.
“There are some large plants that are closed, but it’s not like the entire supply has been shut off,” Bartashus said. “It’s also a staggered effect of closures and reopenings.”
Nonetheless, restaurant operators are concerned that running out of the meat they need to make burgers and sandwiches could derail any nascent recovery. Given the circumstances, the normal fix of simply hiking prices isn’t ideal, said Howard of Fazoli’s, but the company may have little choice.
“The last thing we want to do is raise menu prices,” he said.
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