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U.S. restaurants face tough order locking in low beef prices

It is getting harder for restaurant chains to lock in long-term prices for hamburger and other beef cuts as the impact of last summer’s historic drought sends prices higher.

Such purchasing contracts help companies predict their food costs over time, and if done well, can save them significant money in times of rising prices.

Chili’s Grill & Bar parent Brinker International Inc. was one of the first large operators to signal the trend.

“We can’t really contract for ground beef anymore… We can just lock in supply but not price,” Guy Constant, Brinker’s spokesperson said on a conference call with analysts last week.

Overall beef prices are up roughly seven per cent so far this year, and hamburger is up as much as 10 per cent, said Adam Werner, co-lead of consulting firm AlixPartners’ restaurant and food service practice.

The worst drought in more than 50 years in the U.S. Midwest has pushed up prices for feed corn and led to the smallest cattle supply in more than 60 years.

That supply squeeze also comes at a time when Tyson Foods Inc., the largest U.S. meat supplier, already was cutting back on annual fixed-price agreements.

On Feb. 1 Tyson reported quarterly profit that topped Wall Street’s view, after strong beef and chicken prices helped offset higher feed costs.

The average price per pound for beef sold during the quarter, ended Dec. 29, was up 11.7 per cent from a year earlier, while chicken was up 8.2 per cent, Tyson said.

Restaurants that want to, can lock in long-term prices for hamburger and other beef products, said John Davie, chief executive of Consolidated Concepts, a firm that helps restaurants negotiate purchases.

“We can get them, they’re just not very good,” Davie said, referring to pricing terms.

McDonald’s Corp., the world’s largest restaurant chain by revenue, declined to comment on its beef supply and pricing saying it such information is “confidential and proprietary.”

Wendy’s Co. uses only fresh beef and says it is business as usual at the fast-food hamburger chain.

“Wendy’s is still able to lock in prices for its fresh hamburger on a quarterly basis,” spokesman Bob Bertini said.

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