Playing The Market

Do you try to time the market for your top center of the plate items?

Tolerance for using frozen protein items may be the key to your response. I have seen operators with huge outdoor freezers receive a truckload of meat shipped directly from Chicago. Prior to placing the order, they studied the Urner Barry Yellow Sheets and pulled the trigger at a favorable time.

This article is written for the other type of market play. Operators may receive calls from their meat and seafood suppliers in up markets asking if they want to lock in a high price before it goes higher. Some take the bait and lock a bad price for their busiest season. No freezer needed in this scenario. You simply agree to pay a high price for your key ingredients during your busiest period of the year.

Commodity markets climb when demand outstrips supply. Those who follow the futures markets look at long term trends like herd size and seasonal weather predictions. Recent gains in corn prices have made items sensitive to grain prices quite high.

These markets are typically difficult to trade for new entrants. Unless you have excellent information and see a major market anomaly, I would not recommend placing a futures hedge bet.

Let's look at some of the trends in the grains markets. I'm using information from Daily Futures including these charts:

Corn


Soybeans


Wheat


Both Corn and Soybeans are up strongly since October and the Wheat curve is parabolic. Will the markets for these grains redouble? Probably not. With the summer grilling season coming soon, it may not be a terrible time to stock your freezers. Certain beef items and grades are still a deal. Upward price pressure is still evident.


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Time For Burgers and Fries

Current market data for February 22, 2008 shows a better environment for restaurants with menus dominated by burgers and fries. Using a pub sized portion for the burger (8 ounces) and the french fries (8 ounces), these operators have picked up 3 cents since last year.

The price of soybean shortening has doubled. This unfavorable trend is offset by stable prices for frozen potatoes and ketchup and a decline in the ground beef price.



Market Data from Foodservice.com (www.foodservice.com) - An Online Community for Foodservice Operators was used in creating the chart.

Operators looking for greener grass in the other vegetable oil markets won't find much relief. Canola oil and corn oil are both way up since February 2007. I'm using Wenzel Menu Maker's oil-to-fries ratio of 8 pounds oil per 100 pounds of potatoes. The Wenzel model uses fresh potatoes. With today's innovative oil solutions, some operators may have an additional edge.


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Challenging Time For Pizzerias

With more people utilizing take-out dining options, pizza delivery is growing strongly in my neighborhood. Today is Friday and I expect plenty of delivery cars on the streets near my home tonight. The pizza segment has a long tradition of take-out and delivery service.

I worked in a pizzeria during my college years and we served lots of pizzas to go each night. The delivery option was not available for our customers. With a growing number of pizza lovers requesting delivery, the current economy offers pizza chains plenty of challenges:

Gas prices are up due to a weak dollar and soaring demand for foreign oil;
Mozzarella cheese prices have seen dramatic increases;
Domestic vegetable oil prices have risen and imported olive oil is up;
Canned tomato products have experienced modest increases and flour is trending higher.

Taking a closer look at the mozzarella cheese market, we have seen major shifts in the price curve (see chart below):



Market Data from Foodservice.com (www.foodservice.com) - An Online Community for Foodservice Operators was used in creating the chart.

Early January market prices from 2007 to 2008 have increased 62.5%. The trading range in recent months, between $2.00 and $2.50 per pound, is well above 2006 levels.

Pizzas use anywhere from 6 to 12 ounces of mozzarella cheese per pie. Many operators pay 75 cents more per pie for this key ingredient. If the target food cost percentage was 25%, they'd have to raise prices $3.00 to maintain margins. With plenty of delivery and take-out options competing for market share, a $3 increase may be a tough sell.

I'd recommend more profitable add-on sales to improve results. Soft drinks, garlic knots (a New York favorite), salads, chicken wings, and other non-dairy options could help the bottom line.


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In addition to my 100% free Food Cost Control Blog, I have started a second resource which will be offered for a limited time for $100 per year. This online resource will include many posts like Slow Day vs. Busy Day . These articles will not be typical on the free blog. Click the Buy Now button located on the upper left sidebar to join!