As costs rise, menu prices could follow Pandemic disruptions have increased prices all along the restaurant supply chain By: Martin Cash Posted: 7:00 PM CST Thursday, Feb. 25, 2021

Hey there, time traveller!
This article was published 25/02/2021 (1677 days ago), so information in it may no longer be current.

Allowing restaurants to open at 50 per cent capacity is under consideration by the province, but operators are under pressure to greet those returning patrons with something that leaves a bad taste in everyone’s mouth – rising prices.

That’s because along with the dramatic increases in meat prices that have been emerging over the past few months, annual price increases for incidental supplies like polypropylene-based packaging materials have more than doubled this year.

As well, the Canadian Dairy Commission implemented milk prices increases as of Feb. 1, causing suppliers like Bothwell Cheese to increase its prices to food service clients by 4.5 per cent per kilogram.

“These are all just another hit to our bottom line,” said Dave MacKay, one of the owners of Little Bones Wings in Transcona. “Every restaurant has to face this inevitable question… how many more price increases can we absorb before it is time to pack it in.”

The food service suppliers who were spoken to on background said their price increases are a result of increases they have experienced from the manufacturers.

One supplier said, “Restaurants are notorious for not increasing prices as quickly as they should for their own good.”

Leigh Young, owner of Winnipeg’s Toledo Foodservice said the sticker shock is being experienced up and down the supply chain.

“Even the packing plants are not happy with the prices they are paying for cattle,” he said.

In addition to all the disruptions the packing plants have experienced throughout the COVID pandemic, feed prices are up and hay is getting hard to come by, driving beef prices up 25 per cent year over year.

MacKay said the chicken wings they buy for processing that they freeze and sell into the retail channel are up 26 per cent from a year ago.

The wings they buy for sale at the restaurant – Little Bones averages about 10,000 per week – are up about 12 per cent.

A spokesperson from Exceldor, the Quebec company that acquired Granny’s Poultry in 2019, said, “Price agreements are usually confidential. It is true that prices in the food industry have increased over the past year; unfortunately, poultry is no exception. The main reason… is the significant live price increase which is not unique to Exceldor cooperative and affects the entire industry. The substantial costs related to the COVID-19 pandemic also play a role in the price increases.”

Young said beef prices will continue to be a concern.

“Restaurant and food service operations are going to have to re-evaluate their menus and get creative,” he said. “If they stay with traditional portion sizes and cuts they will miss out on opportunities. They have to be imaginative.”

They are also going to have to get creative on the packaging side as well.

MacKay’s supplier at Little Bones notified him this week that some packaging products have spiked more than 10 per cent. That’s because of a global supply shortage of resins used in the manufacturing.

Winnipeg-based Winpak, one of the largest manufacturers in North America of packaging film for cheese and some meats as well as things like individual creamers, said his raw material prices have gone up dramatically since late last year.

Olivier Muggli, CEO of Winpak, said, “Even before the Texas weather impact, polyethylene and polypropylene resins, which are commonly used in packaging, saw prices increases from 20 per cent to over 30 per cent. That is unseen in such a short period of time, in my 30-plus years in the industry.”

James Rilett, a vice president of Restaurants Canada, said restaurants typically expect price increases of two-to-three per cent a year on incidental items like packaging. He said he has heard anecdotally that those increases are in the range of four-to-eight per cent this year.

“It’s just what we need. Another kick while we’re down,” he said. “It never stops. But fingers crossed. Hopefully it gets better.”

MacKay said those annual inflationary increase of two-to-three per cent generally would not cause menu price increases, but when average profit margins for restaurants across the board in Canada were at about 4.4 per cent in 2019, there is not a lot of wiggle room.

Scot McTaggart, the owner of Fusion Grill and a board member of Restaurants Canada, said, “Margins are so tight. If you are an operator and your prices go up… absolutely, a smart operator will have to increase prices or cut labour or something to maintain positive cash flow and hopefully, profitability.”

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The trick for operators is to do it at a pace that will not drive customers away, a concern all of them have to face even though there is a lot of pent up demand from those customers who’ve not been able to patronize their favorite spot for a whole year now.

At Little Bones, MacKay said they have learned how to operate takeout and have come to terms with the cost of using the delivery services which he says take up most of the profit margin.

But with only 32 seats for in-house dining he said Little Bones will not re-open for dine-in until 100 per cent occupancy is allowed.

In the meantime he said, “We now have a choice to make. We either absorb our price increases or we pass it on to our customers. The question is, how much can you pass so. I can’t raise my prices by 25 per cent. No one would walk in the door.”

martin.cash@freepress.mb.ca