Menu price increase
In the previous part of this series, we saw how commodity costs can affect Bloomin’ Brands (BLMN). The company has been raising its menu prices to reduce the impact of commodity cost increases. You can see in the chart below that all four restaurant brands listed saw a menu price increase in the last three years.
Fleming’s sees the biggest increase
In 2014, Fleming’s menu price increased the most, by 3.1%, and in 2013 it rose by 3.4%. Fleming’s is a prime steakhouse and it depends on beef as its primary ingredient. The average check at Fleming’s is already $71, which is lower than $24 at Bonefish, $21 at Carrabba’s, and $21 at Outback Steakhouse in the US.
Outback’s menu price increased by 2.9%, and so did Bonefish’s. The company stated that it faced higher prices for beef and seafood during the year, which led to an increase in menu prices at these two brands. The company also increased menu prices at Carrabba’s.
Higher menu prices may not be a bad thing
A restaurant must be cautious when raising its menu prices, as this may lead to losing price-sensitive customers. But price increases aren’t uncommon. Chipotle Mexican Grill (CMG) also increased its prices in 2014.
Increases in commodity costs affect fast-food restaurants more because of the dollar menu and lower-ticket items. A price increase alone isn’t enough to lose customers. In CMG’s 3Q14 earnings call, CEO Steve Ells stated, “Despite offerings dollar menus and frequent discounts, many of these chains also scored poorly in terms of value.”
So, the question is how much were same-store sales get affected, given these menu price increases? We’ll discuss this in the next part of this series.