Food Costs Jump During Pandemic

As retailers debate how to offset operations costs, consumers see the biggest price increases in almost 50 years.

June 02, 2020

ALEXANDRIA, Va.—The recent pandemic has disrupted processing plants and distribution networks, causing the cost of meat, eggs and even potatoes soar. In fact, the cost of food bought to eat at home has recently skyrocketed by the most in almost 50 years, reports Fortune.

Big fluctuations in food prices began in March, when the coronavirus pandemic started sinking in for U.S. consumers. While price spikes for staples, such as eggs and flour, have eased, prices remain volatile for carrots, potatoes and other produce, the result of transportation issues and the health of workers who pick crops and work in processing plants.

The U.S. Labor Department reports that the 2.6% jump in April food prices was the largest monthly increase in 46 years. Prices for meats, poultry, fish and eggs jumped the most, up 4.3%. While the 2.9% hike in cereals and bakery products wasn't as steep, it was still the largest increase the agency has recorded.

Prices for dairy and related products, along with fruits and vegetables, increased by 1.5% in April. Egg prices reached a record of more than $3 per dozen in late March but have since fallen to less than $1 a dozen.

The national meat-supply crunch driven by the coronavirus pandemic is beginning to ease, reports the Wall Street Journal, although meat and grocery suppliers expect the effects to linger for months. Even as meatpacking plants reopen, consumers nationwide are paying more for ground beef as meat production remains hampered by COVID-19.

The U.S. food industry heads into the summer months with last week’s beef and pork production about 7% lower than the same time last year, according to the U.S. Department of Agriculture, although production is up from steeper declines in late April. While grocers say consumers’ panic buying has tailed off, reopening restaurants across the country have resumed food purchasing, keeping meat supplies tight.

At the retail level, beef prices increased 21.7%, and pork prices rose about 17.7% year-over-year for the week ended May 23, according to Nielsen. Retail chicken prices climbed 10.5% for the same period.

Meat is not the only thing in short supply. Rice, flour and pasta remain scarce because of higher demand, and suppliers still have allocation limits for these items. Canned vegetable supplies will be tight until July and August.

What all of this means for restaurants and retailers is that the cost of doing business has increased. According to Restaurant Business Online, rising food prices, costs for to-go packaging, third-party delivery fees, protective gear for employees and more have cut into already-dwindling margins. A number of restaurants attempting to make up for those increased costs have instituted COVID-19 surcharges on each check.

Chicago-based multi-concept operator Lettuce Entertain You Enterprises, recently added a 4% surcharge to delivery and carryout orders at all its restaurants. The fee can be refunded, however, for any customer who requests it, said R.J. Melman, president, LEYE.

“The fees are a necessary step during a time when unanticipated costs have jeopardized the survival of our business,” Melman said. “Our industry has been dramatically impacted as a result of the COVID-19 pandemic forced closures. In addition to the extreme restrictions that have been placed on our dining rooms, we are also facing additional costs of doing business.”

But these surcharge have sometimes drawn consumer backlash and have lead to a drop in traffic, said Rich Shank, vice president of research and insights at Restaurant Business.

“It’s always a risk to advertise raising prices, and that’s what a surcharge does,” Shank said. “A restaurant will be better served by doing their homework on what current items are undervalued on their menu from a consumer perception standpoint and targeting those items for increases and running a trade-off analysis that assumes you will force some percentage of customers to trade-down to cheaper products in order to make sure that the register rings up in their favor at the end of the day.”

According to a survey by Technomic, just 31% of consumers surveyed said they “find it acceptable” that restaurants would tack on a coronavirus surcharge, while 38% said it is reasonable for restaurants to raise their menu prices for COVID-19-related costs. Thirty-two percent of those surveyed said they would visit a different restaurant rather than pay a COVID-19 surcharge.

In May, Kiko Japanese Steakhouse & Sushi Lounge in West Plains, Missouri, added a surcharge to compensate for rising meat costs, resulting in tremendous consumer backlash. The restaurant quickly removed the surcharge and increased menu prices instead.

“Please understand we are not doing this to take advantage of you guys!,” the restaurant wrote on Facebook. “We are doing this hoping we can adjust the surcharge weekly rather than just raise all of our prices on our menu due to increased prices from our supplier … Therefore, we will take the surcharge off from our system & we truly apologize, we have to raise all of our prices!”

Coronavirus Resources

NACS has compiled resources to help the convenience retail community navigate the COVID-19 crisis. For news updates and guidance, visit our coronavirus resources page.