Drought forces restaurants to raise prices, cut portions

By Tiffany Hsu Los Angeles Times

LOS ANGELES — Smokin’ Jonny’s BBQ opened less than a year ago, but pricey corn on the cob has already disappeared from the menu.

Rising beef prices are causing owner Jon Sekiguchi headaches as well. His Gardena, Calif., restaurant sells beef ribs only on the weekends, when customers are more willing to splurge. And he’s struggling to find affordable beef sausage for his $6.95 smoked sausage sandwich.

Scorching weather this summer in the Midwest left crops parched and livestock famished. Restaurants, already struggling with high fuel costs and a sluggish economy, are starting to feel the pinch of higher food costs.

“It’s a tough one,” Sekiguchi sighed. “I didn’t want to sell corn for $3 when I used to charge $1.50. And it used to be better quality, too.”

Commodity prices were increasing even before the dry spell. Economists say even bigger increases are ahead as the poor U.S. harvest ripples through the food chain.

Now fast-food giants, fancy eateries and even corner coffee shops are scrambling to adjust. The cost of food rivals labor as the top expense for most restaurants. Restaurateurs are revamping menus, reducing portion sizes and even considering staff cuts. In the months to come, they say, watch for smaller steaks, fewer tortillas per entree and maybe even menu-wide price increases.

Customers are already seeing a change. Gina Grad, a radio network content producer, said she’s noticing smaller servings, steeper bills and thinner crowds at the trendy restaurants in her Los Angeles neighborhood, where organic and locally grown ingredients reign.

The “only good thing” to come out of it: “The number of people out to brunch on weekends is down,” said Grad, 34. “You can finally get a table in less than an hour.”

Actor Chase Edmondson, 22, of Los Angeles, said he’s taken to ordering kids meals to combat menu shock.

“It’s kind of ridiculous when you’re getting a hamburger for $12,” Edmondson said.

Restaurant prices have been rising for more than a year. Wholesale food costs rocketed 8.1 percent last year in the largest jump in more than three decades. The Olive Garden’s Never-Ending Pasta Bowl, offered at $8.95 for the past five years, jumped to $9.95 in late August, partly because of higher food costs.

And this summer, a Big Mac cost $4.33 on average in the U.S., up from $4.20 in January and $4.07 a year earlier, according to the popular Big Mac index compiled by the Economist.

Those increases will continue, but at a faster pace.

The price of corn — a key component in livestock feed and an ingredient in powdered sugar, salad dressing, soda and more — catapulted 60 percent in early summer. A British trade group recently predicted “a world shortage of pork and bacon next year,” which most analysts interpreted to mean that higher prices are ahead.

In the meantime, chickens and turkeys are getting more expensive just in time for the holidays. Already, chicken prices are up 5.3 percent from a year earlier, while the cost of turkey and other poultry is up 6.9 percent. Eggs cost 18 percent more in September than they did a year earlier.

Zacky Farms in Fresno, Calif., one of the country’s largest turkey producers, filed for Chapter 11 bankruptcy protection this month, blaming the rocketing price of animal feed.

Buffalo Wild Wings, the popular chicken wing chain based in Minneapolis, recently told analysts that it’s boosting menu prices by an average of 4 percent in its company-owned stores to help offset soaring wing costs.

Analysts expect overall food costs to rise 5 percent to 20 percent by the end of the year — a painful squeeze for businesses that, even in the most prosperous times, operate on tight margins with little room to maneuver.

“If the cost of the food goes up that much, it can pretty much wipe out their profit,” said John Davie, chief executive of food service partnership Dining Alliance. “Restaurants will be forced to look at everything from the phone bill to payroll to food costs to how they negotiate with vendors.”

Many big chains have avoided hefty menu price increases thanks to long-term deals with their suppliers. It’s the little guys who are getting hammered hardest, said Don Krueger, an analyst at Motley Fool.

“Sophisticated large guys can hedge far into the future,” said Krueger said. “The smaller mom-and-pop restaurants are going to get hit with the drought very shortly.”