Commodity cost increases have hit nearly every restaurant chain this year, but inflation inwing prices is especially pronounced because of comparisons to 2011, when prices were well below three year averages.
In an environment where every penny counts, strategies for cost savings, or at least cost management, become more important than ever. When it comes to chicken wings, medium wings averaged 99 cents per pound in 2011, down 20 percent from the three-year average of $1.24, according to data from SpenDifference, a supply chain consultant that works with restaurants.
Through the first three months of 2012 — peak-demand season for wings because of the Super Bowl and March Madness — per-pound prices are projected to be $1.80 in January, $1.75 in February and $1.60 in March, each representing a spread of more than 30 cents with three-year monthly averages of $1.41, $1.36 and $1.26, respectively.
“The 2011 market was an anomaly,” Maryanne Rose, chief executive of SpenDifference said. “Major poultry suppliers ran negative margins last year because of the high cost of feed, and this year they reduced bird counts to lower supply, but grocery stores have bought all the freezer inventory … and [restaurant chains] are dealing with live supply.
“Now the market is peaking at prices I haven’t seen in more than five years,” she said.
Rose said restaurant operators knew those record-low prices wouldn’t last and planned their contracts accordingly.
East Coast Wings’ chief executive Sam Ballas and executive vice president Tom Scalese — former Wall Street traders — said they moved quickly to lock in their purchasing contracts for 2012. Moving on prices several months early allowed the chain to procure wings at about 65 cents below market value pricing.
“We have been lethal as to how we manage our buying and timing of wing contracts for the whole system,” Ballas said.
He added that the Winston-Salem, N.C.-based brand had leverage to exert with its wing supplier in the form of 44 franchise agreements sold.
“We went to them early and said we knew wing prices would peak a lot stronger and that we’d have about $30 million of new business coming in, which indicates a need for more wing processing,” Ballas said. “We said, ‘We’d like to know you can handle more volume before we have to go to a second supplier.’”
Supply chain management moves of that sort have improved East Coast Wings’ cost of goods by about 2.4 percent, Ballas said, and strategic menu price increases in nearly each of the eight years the brand has been franchising has driven unit-level earnings.
Like other chief executives, John Longstreet at Quaker Steak & Lube also knew last year’s record-low chicken wing prices wouldn’t last and moved early to protect the brand from inflation in 2012.
“Gary Meszaros, our co-founder, said, ‘I think we’re going to have a problem in 2012, let’s renegotiate the rest of 2011 and make it an 18-month contract,’” he said. “We’ll save more than $200,000 as a system compared to market prices this year.”