Source: Nation's Restaurant News
In the past two years, restaurant brands have turned French fries into a battlefield, offering deals and new twists to lure in customers. But price pressures from a poor recent potato crop in Europe may soon complicate that strategy.
“Europe is having one of the worst potato crops in 40 years,” said Akshay Jagdale, packaged food analyst with Jefferies Inc., on a webinar Wednesday. “The harvest is now complete. And the shortage in Europe is likely to start playing through in the export markets pretty soon.”
Belgian open-market potato prices are 11 times higher than this time a year ago, for example, according to analyst Cedric Porter, editor of the United Kingdom-based World Potato Markets. And those price hikes are expected to ripple through the global markets.
For quick-service brands, especially, fries are not only a staple side item and a fixture on their value menus but they have become an area where companies can offer special marketing promotions and menu creativity.
Dublin, Ohio-based Wendy’s, for example, offered $1 Any Size Fries Nov. 30-Dec. 26 at the 6,600-unit brand. San Diego, Calif.-based Jack in the Box last summer introduced a “Sauced & Loaded Fries” promotion that started at $3 for its 2,200 locations. And Taco Bell, the Irvine, Calif.-based division of Yum! Brands Inc., last year introduced Nacho Fries on its Dollar Cravings Menu, and the 7,000-unit brand said it was its most successful new menu item, selling 53 million orders.
Loaded fries from Jack in the Box
While large restaurant brands’ commodities contracts can insulate them from large swings in prices, the European potato shortage will likely impact promotions and pricing.
“Volatility in commodity prices is a nightmare for restaurants,” said Leslie Kerr, founder of Boston-based Intellaprice, a restaurant consulting firm. “It’s hard to resist a knee-jerk reaction, and often operators will take a price increase to compensate for cost spikes.
“In some cases, it’s easier to tough it out than others,” she said in emailed answers to questions. “But for burger brands, potatoes are integral to so many items on the menu as a key value combo component and as the main side item. Because there is such a direct link between cost and price, it may seem like a no-brainer to bump the price to compensate for the lower margin, so guests shouldn’t be surprised to see some price creep.”
Those price increases could impact planned promotions across the restaurant landscape. One-dollar fries frequently pop up as a successful traffic driver, such as the offers at Tampa, Fla.-based Checker’s/Rally’s, which gives free fries as part of its loyalty program signup and has run $1 specials in the past.
“As for promotions,” said pricing expert Kerr, “it’s sort of a good news/bad news situation.
“On the bright side, it’s relatively easy to pull this promotion if it’s planned. We should expect to see less of the $1 Any Size Fries offers that were popular last year,” she said. “Yes, there will be a need to promote something else, and there is certainly inconvenience if $1 Any Size Fries is already built into the marketing plan, but the hassle factor is less than that of pulling a full-on new product or limited time offer.”
Any commodity price increases come at an unfortunate time, Kerr added, because many brands are dealing with recent labor cost increases because of minimum wage rates, which rose in more than 20 states at the beginning of the year.
“It takes work from all areas of the company to readjust plans due to a commodities crunch,” Kerr said. “But it’s not the first time these operators have dealt with this type of situation, and it won’t be the last.”