The corn factor: Rising prices impact the concession stand
With the election over and the end of 2012 near, everyone is planning and forecasting for 2013. Questions remain about the strength of the economy and the financial future of the U.S., but one thing is for certain: Food prices will continue to climb. The simple explanation is the summer drought which greatly harmed the corn crop in the U.S. The USDA figures came out on Nov. 9 and indicated that things will not be quite as grave as previously forecast, but there will nonetheless be a price push for the consumer. As for popcorn specifically, supply went down and the price went north.
Some farmers are calling the drought the worst in history. Officially, the USDA has determined that this is the smallest U.S. corn crop in six years. But America also exports corn, and its rising price has weakened the global demand for it. This has recently resulted in a slight decrease in the price of corn, but still roughly double the price of just two years ago. A bushel of corn is now around $7; it was in the range of $3.50 in 2010.
The effects of this on the entire U.S. food chain are enormous. Why? Corn byproducts are major ingredients in a large number of processed foods, in addition to competing with animal feed and ethanol. Demand for corn has risen over the last ten years as the search for alternative energy has gone up; indeed, the demands on the commodity have never been greater. I started off speaking of corn as a whole commodity because it represents the big picture—the fields for corn are carefully planned according to end use. As for popcorn, what this means is even greater supply issues because the amount of field production devoted to it has been reduced. This has made the summer drought affect the popcorn crop even more dramatically.
Prices for popcorn contracts have more than doubled for 2013 versus 2012. This mirrors the commodity price of corn. The bigger problem is supply. It is being stretched very thin and the largest U.S. producers are importing corn in order to supply their own customers. Contracts for 2014 are also being affected as the long-term impact will be felt in the supply chain and contracts will be shorter in length for the near-future.
How does this affect the theatre concession business? Operators can absorb the price increase, pass it along to the consumer, or do both. Both seem to be happening—this is such a large price increase that the pressure to pass along some of the sacrifice is too great. Some chains are eliminating their smaller sizes so they can raise the prices on medium and large popcorn sizes. These have traditionally been incrementally larger than the small sizes, and eliminating the small sizes allows operators to have a higher starting point. Operators are also absorbing much of the price increase and have budgeted for 2013 accordingly.
The good news in terms of perceptions is that the consumer is seeing the same price increases across the board for weekly groceries. The consumer is also well aware of the summer drought, and its effect on food prices, specifically that of corn, has been well-reported. But what is the breaking point? Are we close to it with our popcorn pricing already? This is always the question we face. Are we pricing ourselves out of the market? 2013 may be a very good test for this in the highly profitable area of popcorn sales. Can we follow the food price trends and increase prices to offset our costs? We shall see.
The demand for corn is not expected to abate, which puts continual upward pressure on the price. Other markets are picking up some of the need and popcorn will be flowing into the U.S. from many places during 2013. The pressure on farmers to produce corn for ethanol, animal feed or food has reduced the fields of seed for popcorn over the past decade. It continues to be a problem when we experience a drought and the margins of error for loss are just so slim. That is why this past summer was such a catastrophe, with the severity of the drought eliminating the ability of the market to meet demand. Traditional economics kick in at this very base commodity level and when supply runs short, demand must be downgraded by price.
But in the cinema industry, this is not really a luxury. It is still our number-one food item profit center and a staple of the concession operation. It is not something we can trend out of offering—it must be available. Hence the need for popcorn product from wherever it can be produced. But be assured the price tag will match it. Movie operators are scrambling to secure supply at this point and will adjust cost and consumer pricing accordingly. 2014 is still a mystery until the effects of this year’s crop are fully felt and next summer delivers what we hope is a different result.
E-mail your comments to Anita Watts at firstname.lastname@example.org.