Small chickens will cost more next yearSmall chickens will cost more next year

Jonathan Maze

Chicken prices are on the decline at the moment and are widely expected to ease again next year. So we were a bit taken aback on Thursday when Popeyes Louisiana Kitchen CEO Cheryl Bachelder warned that her chain will likely pay higher chicken prices in 2015.

The reason, it turns out, is because they use small chickens.

For the most part, restaurants that sell bone-in chicken such as Popeyes, KFC, Bojangles and others prefer to sell parts from smaller birds. Larger birds have larger pieces, and the per-piece cost is higher. 

But producers prefer to sell larger chickens because they can get more money per bird right now. Lower corn prices have reduced their costs, and larger chickens bring in higher profits.

There are fewer facilities that specialize in smaller birds, reducing supply. And when chains want producers to supply smaller birds, they're demanding higher prices to make up for the lost profits. 

"The walk they're walking right now is, 'I can grow a larger bird and make more profit. That's the direction I want to go,'" said DeWayne Dove, vice president of risk management for the Denver-based purchasing cooperative SpenDifference. "'If you're going to hold me to a smaller bird, I'm still going to get more profits.'"

Bachelder said her chain expects to pay more for its chicken next year as suppliers look to improve their earnings. "Quick-service birds are smaller birds than the birds they're selling to Walmart for rotisserie chicken," she said. "The smaller birds have lower profit margins."

The tension between poultry suppliers and poultry buyers is a common one. It has contributed to high chicken wing prices in the past for much of the same reason. But chains like Buffalo Wild Wings have moved away from per-piece servings recently so they can sell larger wings. Perhaps not surprisingly, wing prices have been less volatile of late.

Bone-in chicken chains could ultimately be forced to do something similar, because Dove expects the tension between producers and buyers to continue beyond 2015. "That's going to be a battle," he said. "With more small bird facilities transitioning to larger birds, the industry may be forced into making changes to specifications. Or there's going to be a new bar for what the industry pays for small birds."

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