Good news on the cost front?

Zimbabwe has just introduced a new currency denomination, a $50,000 bill, to help citizens contend with runaway inflation. With prices increasing at a rate of 600% per year, the new bill has the same buying power as 50 cents does in the U.S.

Close to the other end of the spectrum is the food-cost situation for restaurants, as I’m learning in researching an upcoming NRN feature on margin management. Last year, restaurateurs clutched their chests from time to time as they read about the rocket ride that prices were about to take because of hurricanes and the moonshot in fuel prices. In reality, those vertical climbs never took place.

The outlook for 2006, as I’m learning, is extraordinary. Experts agree that the major restaurant-consuming commodities will likely provide some relief to restaurateurs. For instance, the U.S. Department of Agriculture has forecast that ranchers, after getting an average of about 87 cents a pound for choice steers in 2005, will be getting anywhere from 81 to 87 cents this year. The cost of hogs could fall by as much as 16%, and chicken’s decline will accelerate by another 6%.

What I’m learning is that operators are still deliberating how to take advantage of the environment, since parallels with similar past situations might not hold. With fuel prices not likely to recede to the levels of a few years ago, and the housing markets in some areas starting to sputter, consumers might ratchet back their spending, some economists warn. The margin boon of charging the same for less-expensive foodstuffs might not be feasible. Yet cutting prices, the industry has learned, is hard to un-do when food costs climb, as they undoubtedly will again, especially with transportation costs on the rise.

My story is looking at what operators are doing. If you want to share your approach, speak up, please. Drop me a note at promeo@nrn.com, or post your thoughts here.