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Thursday, February 28, 2008

Playing The Market

Do you try to time the market for your top center of the plate items?

Tolerance for using frozen protein items may be the key to your response. I have seen operators with huge outdoor freezers receive a truckload of meat shipped directly from Chicago. Prior to placing the order, they studied the Urner Barry Yellow Sheets and pulled the trigger at a favorable time.

This article is written for the other type of market play. Operators may receive calls from their meat and seafood suppliers in up markets asking if they want to lock in a high price before it goes higher. Some take the bait and lock a bad price for their busiest season. No freezer needed in this scenario. You simply agree to pay a high price for your key ingredients during your busiest period of the year.

Commodity markets climb when demand outstrips supply. Those who follow the futures markets look at long term trends like herd size and seasonal weather predictions. Recent gains in corn prices have made items sensitive to grain prices quite high.

These markets are typically difficult to trade for new entrants. Unless you have excellent information and see a major market anomaly, I would not recommend placing a futures hedge bet.

Let's look at some of the trends in the grains markets. I'm using information from Daily Futures including these charts:

Corn


Soybeans


Wheat


Both Corn and Soybeans are up strongly since October and the Wheat curve is parabolic. Will the markets for these grains redouble? Probably not. With the summer grilling season coming soon, it may not be a terrible time to stock your freezers. Certain beef items and grades are still a deal. Upward price pressure is still evident.


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Monday, February 25, 2008

Time For Burgers and Fries

Current market data for February 22, 2008 shows a better environment for restaurants with menus dominated by burgers and fries. Using a pub sized portion for the burger (8 ounces) and the french fries (8 ounces), these operators have picked up 3 cents since last year.

The price of soybean shortening has doubled. This unfavorable trend is offset by stable prices for frozen potatoes and ketchup and a decline in the ground beef price.



Market Data from Foodservice.com (www.foodservice.com) - An Online Community for Foodservice Operators was used in creating the chart.

Operators looking for greener grass in the other vegetable oil markets won't find much relief. Canola oil and corn oil are both way up since February 2007. I'm using Wenzel Menu Maker's oil-to-fries ratio of 8 pounds oil per 100 pounds of potatoes. The Wenzel model uses fresh potatoes. With today's innovative oil solutions, some operators may have an additional edge.


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In addition to my 100% free Food Cost Control Blog, I have started a second resource which will be offered for a limited time for $100 per year. This online resource will include many posts like Slow Day vs. Busy Day . These articles will not be typical on the free blog. Click the Buy Now button located on the upper left sidebar to join!

Friday, February 22, 2008

Challenging Time For Pizzerias

With more people utilizing take-out dining options, pizza delivery is growing strongly in my neighborhood. Today is Friday and I expect plenty of delivery cars on the streets near my home tonight. The pizza segment has a long tradition of take-out and delivery service.

I worked in a pizzeria during my college years and we served lots of pizzas to go each night. The delivery option was not available for our customers. With a growing number of pizza lovers requesting delivery, the current economy offers pizza chains plenty of challenges:

Gas prices are up due to a weak dollar and soaring demand for foreign oil;
Mozzarella cheese prices have seen dramatic increases;
Domestic vegetable oil prices have risen and imported olive oil is up;
Canned tomato products have experienced modest increases and flour is trending higher.

Taking a closer look at the mozzarella cheese market, we have seen major shifts in the price curve (see chart below):



Market Data from Foodservice.com (www.foodservice.com) - An Online Community for Foodservice Operators was used in creating the chart.

Early January market prices from 2007 to 2008 have increased 62.5%. The trading range in recent months, between $2.00 and $2.50 per pound, is well above 2006 levels.

Pizzas use anywhere from 6 to 12 ounces of mozzarella cheese per pie. Many operators pay 75 cents more per pie for this key ingredient. If the target food cost percentage was 25%, they'd have to raise prices $3.00 to maintain margins. With plenty of delivery and take-out options competing for market share, a $3 increase may be a tough sell.

I'd recommend more profitable add-on sales to improve results. Soft drinks, garlic knots (a New York favorite), salads, chicken wings, and other non-dairy options could help the bottom line.


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Monday, February 18, 2008

Food Prices Are Way Up!

In today's SmartBrief, there's an article about wholesale price increases for food quoting the National Restaurant Association data. The prices for food at the wholesale level have risen 7.3% since this time last year.

Although the article focuses on a sole proprietor who has found it difficult to raise menu prices, they mention the efforts of publically traded Panera Bread. It's too bad they didn't interview a pizzeria owner or a Mexican concept. The current market statistics available to subscribers at Foodservice.COM show Mozzarella Cheese has increased 49% in market price since last year.


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In addition to my 100% free Food Cost Control Blog, I have started a second resource which will be offered for a limited time for $100 per year. This online resource will include many posts like Slow Day vs. Busy Day . These articles will not be typical on the free blog. Click the Buy Now button located on the upper left sidebar to join!

Wednesday, February 13, 2008

Prime Market Follow Up

In my recent post Prime Market Deal , the moves in the market prices for prime beef tenderloin were highlighted. We now have a new update.

The recent market update available at Foodservice.COM shows the market anomaly of the week ended 2/1/2008 reversed course in the following week. A 10.8% gain in the price for prime beef tenderloin wiped out most of the short term opportunity. It is possible to now place the 2/1/2008 market opportunity in better perspective.

Prime beef tenderloin market priced below $11 per pound is a bargain when put in the context of recent market activity. As I compose this post, oil prices are falling close to the $90 level. Since the grains market is linked to oil now due to the increased ethanol production, further volatility is likely.

It appears these short term weaknesses in prime beef prices represent a clear buying opportunity. Now is a good time to check your delivered price per pound and put it in relationship with the market.


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Saturday, February 09, 2008

Prime Market Deal

Market prices for prime beef tenderloin has plummeted from last year's $14 plus levels to below $11 a pound. These are market prices so you won't see anything close to $10 on your invoices. It's possible for savvy high end operators to find a sweet spot. Normally, a Beef Tenderloin yields 6 nice steaks from a 6 pound piece. This is a huge drop in the cost per portion (almost 25%).

If a typical operation serves 1,000 steaks a week from the tenderloin, the savings is $3,500. Major dollars. Two factors seem to be in play. Oil has declined from the $100 per barrel level and the supply/demand mix has changed. Fewer people are buying prime filet in relation to the supply. I see this as logical. During the period of rising prices, many operators shifted from prime to choice. The market statistics on the excellent industry portal Foodservice.com for the week of February 1, 2008 support this observation.

The change in average price per pound for choice is down only 4.4% from last year's figure. This is a minor drop which can be accounted for in the modest recent energy cost improvement. In sharp contrast, the average price for prime is way down - over 24%.

How much would you pay for a wonderful prime Filet Mignon steak? For fantasy purposes, let's pretend our restaurant is right next to a major beef producer and we can get market prices. We'd need a selling price of $35 to offer the meat with some rolls and butter at a 33% food cost percentage. Back a year ago, we would need to offer the same steak for over $45 to obtain the 33% result. Many operations have increased their selling prices over the year. If they are charging the $45 plate charge, a 25% food cost percentage is possible.

Back to reality, most operators live far from the huge beef producers and pay a fair markup. The food cost percentages are far above my fantasy example. Regardless, if you locked in for the quarter with your supplier last week, you may have pulled the trigger at a great prime market time. Let's stay tuned to see if it was a good deal.


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