Bright forecast: Food price indexes look good for 2015
At the beginning of each year I like to look at the food price index and the forecast for food prices. Food pricing, specifically commodity price, greatly affects our food cost. Our food and beverage success in our theatres is based on many things, and food cost is one of the key factors. Hopefully 2015 will be a great year at the box office and our food offerings will be ready to roll. The question is: How will our margins look?
The quick answer is: Really good. In general, the food price outlook is better than it has been in the last few years. Fuel prices are currently low and expected to remain so for the near future and the Fed just announced that their forecast for inflation for 2015 is even lower than originally expected. They are forecasting inflation to be between 1.6% and 1.9%. Both of these will create downward pressure on food pricing. Corn crops and consumable oil are both at high production levels. The only fly in the milk is the high price of beef. This would not normally affect us, but with our increasing move to full-service restaurants, it matters. Let’s dive into some specifics.
The corn market enjoyed a historic crop in 2014 and prices will remain low for 2015. Since popcorn is still our lowest-cost item with the highest frequency of sale per patron, this is good news. The corn market is a complex moving target, with high demand and big highs and lows over the past five years. Corn has affected the entire agricultural market. In an article written by Steve Brooks for Restaurant Business Online back in August, this shift was highlighted. “The move towards the use of corn for fuel was really the start of the structural change in American agriculture,” said Timothy Richards, agribusiness chair at Arizona State University in Tempe, Ariz. “And $2.50-a-bushel corn we’ll never see again.” The move of acreage to corn for said reasons is part of the current beef market’s troubles, and it affects many other commodities. For now, our corn prices will remain low.
Consumable oil prices will also remain low thanks to continued high global production levels. Oil World wrote that “world production of seven oilseeds will rise more sharply than expected in 2014-15, assuming about normal weather conditions in the Southern Hemisphere. There are ample supplies available worldwide.” So even though demand also continues to increase, supply is able to meet it and we will enjoy a stable market price for 2015, barring any unknown catastrophe.
Sugar prices will also not see any significant price increase in 2015. Prices are so low currently that sugar producers are looking at ways to limit production in order to help drive prices up. But the price of candy should not inflate from anything related to sugar.
Dairy is another story, as dairy prices are forecast higher in 2015, and still riding on high levels. The combination makes chocolate prices more difficult to pin down, and they could experience upward pressure. The global goal to support sustainable chocolate also continues to put upward pressure on chocolate prices.
For poultry, pork, beef and dairy prices, the forecast for 2015 is nothing but up. Again, the drought in the U.S. Midwest is continuing to raise cattle prices to historic highs. And the growing diet in China for all these meats in pushing demand to historic levels as well. The combination is making prices skyrocket. The drought in California is also putting pressure on vegetable prices, which are forecast to be higher in 2015. Again, five years ago this wouldn’t have mattered so much to the theatre industry. But since we are now also in the restaurant business, these prices will negatively affect our alternative food costs in 2015.
One more thing to consider for price outlook is volatility. In all the research on food pricing, this is one word that appears as the new reality. Food prices have increased over the past ten years and reached new levels that are now considered normal. Even with the lower price outlook for 2015, the thing that remains at the forefront is the high demand for food production as the world’s population continues to increase. Any disruption from war, drought or natural disaster has large ripple effects. This is what has produced a structural upshift of food prices over the long term, even with a low-priced year such as 2015.
Overall we will be in a good position to keep our food costs low. With the exception of full-service offerings, traditional concession items should produce good margins. Hopefully this will combine with a stellar box office for 2015 to produce a banner financial year for both operators and suppliers. They don’t always match up, but there’s a strong possibility that in 2015 they will.
Send your comments to Anita Watts at firstname.lastname@example.org.