Restaurants looking at price hikes

NEW YORK — Beef might not be what's for dinner at your favorite restaurant come 2009.

Restaurants, now working to secure supply and price contracts for meat and other commodities for the upcoming year, are expecting big increases in food costs, increases that are likely to lead to menu changes and price hikes.

Some chains are already adjusting their menus to reflect current high costs for both beef and chicken. CKE Restaurants Inc., which operates the Hardee's and Carl's Jr. chains, stopped offering double cheeseburgers in its 2 for $3 promotion at the end of August and replaced them with jumbo chili dogs and hot ham and cheese sandwiches, to avoid selling pricey beef at a lower price.

Even fast-food leader McDonald's Corp. is considering some changes to its popular dollar menu, either by changing the items on the menu or bumping up prices, saying the cost of selling meat at such low prices might be too high.

The decision to raise prices or change menus could have some harsh repercussions, especially because more diners already are eating at home to avoid pricey restaurant food.

"This is the most challenging environment for restaurant operators regarding food price inflation on the wholesale level for almost 30 years," said Hudson Riehle, senior vice president of research at the National Restaurant Association.

Riehle said wholesale food prices have jumped 8.7 percent year-to-date through August. That's on top of a 7.6 percent increase in 2007.

In 2006, in comparison, wholesale food prices climbed seven-tenths of one percent, Riehle said.

Menu prices, meanwhile, have gone up 4.2 percent year-to-date through August, a hefty hike for thrifty consumers but not enough of a boost to completely offset higher food and ingredient costs.

Beef and other proteins have arguably hit restaurant margins the hardest in this past year. Beef and veal costs have gone up about 19 percent through August from last year and processed chicken has jumped about 3.5 percent, Riehle said.

Restaurants typically either pay for their meat on the spot market, which can be volatile because prices are based on supply and demand, or they negotiate longer-term contracts with suppliers that set the price.