The outlook for 2014 commodity prices is “benign,” following runaway inflation that did not materialize in 2013, according to an analyst from Barclays.
“Food inflation concerns were paramount heading into 2013, with expected escalation through the year. But similar to the expected [same-store sales] recovery, neither came to fruition,” Jeffrey Bernstein reported in Barclays’ corporate and investment banking division’s December Commodity Cost Tracker.
Restaurant operators struggled with food costs in 2013, especially in the first half of the year, when the price of chicken wings spiked, followed by surges in beef and chicken breast prices, all of which fell later in the year.
Operators responded in the first half of the year, before chicken breast prices spiked, by introducing boneless wings made with less expensive chicken breast. They also offered more menu items made with chicken breast, including new salads and a wrap from Chick-fil-A and Original Recipe Bites from KFC, as well as Popeyes’ reprisal of its Rip’n Chick’n.
Barclays’ restaurant commodity basket is based on average year-over-year changes in seven commodities: beef, chicken, pork, cheese, coffee, corn and wheat. Extra weight is given to beef, chicken and pork, and less is give to corn and wheat, based on the typical purchasing practices of restaurants.
After low double-digit inflation of between 10 percent and 12 percent for the index in May and June, when prices for chicken breast and boxed beef hit record highs, and inflation of between 2 percent and 5 percent in the following three months, Barclays saw 1-percent deflation year over year in October and November, and expected flat pricing in December and an overall easing of prices into 2014, Bernstein reported.
“Otherwise, beef inflation remains modest, with the only true pressure from poultry (up 20 percent),” he wrote, adding that he expected chicken prices to remain below the highs they hit in the summer of 2013.
“The early read on 2014 is for ‘benign’ inflation, with our index currently projecting modest deflation,” Bernstein wrote.
The December index benefited from corn prices that declined 45 percent, he said, compared with the same time last year, and wheat prices that fell 20 percent. Coffee prices also remain low, he said.
The 2012 drought in the Midwest caused a shortfall in the corn harvest that resulted in an increase in livestock prices as feed costs rose. Beef prices were particularly hard-hit, and chicken wing prices skyrocketed during the 2012-2013 football season, especially in the run-up to the Super Bowl. That weekend is the largest wing-consumption period of the year.
Labor costs will likely be more of a concern than food cost in 2014, especially in the face of proposed minimum wage hikes and added costs tied to the Affordable Care Act, according to Bernstein.