Still rising: Food and labor costs continue to grow

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Now that we have stumbled out of the holiday fog and into the New Year, everyone is in full swing with strategic and budget execution. For movie theatre foodservice, this will include new product reviews and launches, new operational procedures, expanded café options, and a review of labor. The two giant costs to a food operation in a theatre are food prices and labor force. Both continue to rise.

The threat of inflation from the still sluggish economy is finally beginning to manifest itself, and it shows in commodity pricing which finds its way to the consumer in the most basic form, food pricing. Basic commodities like corn, oil, sugar, wheat, and dairy have all risen over 2010 and are projected to rise significantly in 2011. According to the USDA, the Consumer Price Index for 2010 is forecast to show an increase in overall food prices of roughly 1.7% with variances between categories. We experienced tremendous food price inflation in 2008, and slightly less in 2009 and 2010. 2011 is looking to be worse.

The projection for 2011 is double the increase for 2010, with a 3% overall rise and some categories experiencing 4-5% increases. These are the projections from the USDA. But if you read too much, like I sometimes do, projections from economic think tanks are much worse, with words like “U.S. food price crisis” being thrown around. Unemployment from the recession is lingering, the U.S. Treasury is continuing to print money, and the resulting inflation is beginning to occur. The other place this is beginning to show is in the slight increase in interest rates, after a long period of forced decrease.

The problem with budget projections is always the unknowns that inevitably occur for any business. A question that will impact budgets in our industry and many others this year is how much food prices will increase. If you look at food and beverage prices in the theatre today, one could easily argue that the ability to move consumer prices upward to any significant degree is slim. This means that the brunt of most food cost increases will fall on the bottom line of the theatre itself. There’s always give and take in this arena, but if food costs for certain products do increase by 5%, will we be able to increase consumer prices by 5%?

What about labor costs? Unemployment is still hovering around 10% nationally, so this should mean that there won’t be a shortage of labor to worry about. But many states increased the minimum wage for 2011; seven of them had to legally since their minimum wage is tied to the consumer price index, which rose. These states include Arizona, Colorado, Montana, Ohio, Oregon, Vermont and Washington. Washington will have the highest statewide minimum wage at $8.67 an hour. The federal minimum wage sits currently at $7.25. The minimum wage varies in other states based on cost-of-living levels, which are predicted to rise this year, as mentioned above. So the cost of labor is going to increase in these states, and this cost must be calculated into annual operating budgets.

Remember the healthcare bill? Well, that begins to go into effect this year and phases into full effect by 2014. The cost of healthcare for employees has risen very steadily for many years, but this bill is increasing healthcare spend for 2011 across the board. The only way to insure 30 million people previously uninsured is to raise the cost for everyone. Corporate personnel will be more costly, as will management cost at theatres. Calculations for the exact increase vary, but none has projected less than a double-digit increase for the majority of U.S. companies.

Labor selection, on the other hand, is better than it has been simply because of unemployment. Theatres are able to choose from a larger pool of candidates as people expand their search for work. The highest percentage of theatre employees are still teenagers, working less than 40 hours a week because of the high cost of full-time employees. But if we look for the bright side of the equation, this would be it. Perhaps the quality of the work force in the theatres will be easier to maintain and manage and offset some of the upward trends.

2011 will be a great year at the box office. But the operational costs for the theatre will need to be very closely monitored and managed. Food and labor are critical components to our success and critical cost factors to our bottom line. This year we must continue to be diligent, in both our creative approach to these categories and in our monthly cost analysis.

Please send comments to Anita Watts at anita@reactornet.com.