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Fast-food chains pressured by higher beef prices might suggest other menu items

11/06/2014 04:43 EST | Updated 01/06/2015 05:59 EST
NEW YORK, N.Y. - Rising beef prices might not mean the cost of a Whopper is going to skyrocket, but it could mean you'll be encouraged to order a chicken sandwich instead.

Beef prices have climbed in part because of rising demand overseas and droughts in recent years that have caused livestock producers to shrink their cattle herds. The average, year-to-date price for 81 per cent lean ground beef is $2.18 per pound, said Kevin Good, an analyst at CattleFax, a Colorado-based tracker of the beef industry. That's up 24 per cent from a year ago.

The soaring prices have hurt fast-food restaurants that feature beef as the centerpiece of their menus: Burger King, Wendy's and McDonald's — the nation's three biggest burger chains — all say they're dealing with higher beef costs.

But fast-food chains, which sometimes pass along additional costs for ingredients to customers, realize there's only so much people are willing to pay for a burger. So, they're taking other measures to help ease the pressure, such as slashing expenses elsewhere or trying to get people to order other things on their menus.

Arby's, a chain best known for its roast beef sandwiches, next week is rolling out a new line of steak sandwiches. But without providing details, CEO Paul Brown said the company is also looking for "more opportunities" to promote chicken, which on average accounts for about 10 per cent of sales for the chain.

"There are certain things you can do, which is promote different items," Brown said in an interview this week when asked how the company is dealing with rising beef costs.

Alex Macedo, president of Burger King's North American region, also said earlier this year the company is pushing chicken more aggressively to offset rising beef costs. This summer, the chain said it brought back its "Chicken Fries," which are deep-fried pieces of chicken in the shape of french fries, after "ongoing guest outcries reached a point where they could no longer be ignored." The dish was introduced in 2005 and taken off the menu in 2012.

Burger King's website is also currently promoting its Italian Original Chicken Sandwich, as well as a deal for 10 chicken nuggets for $1.49.

Burger King is working with franchisees to reduce restaurant costs as well. Carrols Restaurant Group, Burger King's biggest U.S. franchisee, noted that its beef costs were up 32 per cent in the latest quarter from a year ago.

Wendy's on Thursday also announced a plan to cut costs by $30 million to offset challenges, which include rising beef costs. Spokesman Bob Bertini declined to specify how Wendy's is adjusting its marketing strategy to deal with rising beef costs. But he said "our varied core menu with many chicken and salad options gives us options."

To drive customer traffic in the U.S., McDonald's said it's working to keep prices down despite its rising costs for ingredients. To counter pressures, which include weak sales, McDonald's Chief Financial Officer Pete Bensen said the company is working with third-party experts to analyze its cost structure, including staffing levels.

That doesn't mean fast-food customers will be shielded from rising beef costs entirely. Chipotle raised prices nationally by about an average of 6 per cent this past year, with the company citing higher costs for ingredients, including beef. But Chipotle is enjoying strong sales growth and is more confident about its ability to raise prices without scaring off customers.

Companies aren't expecting higher beef prices to ease up anytime soon.

John Harrington, publisher of Hastings, Nebraska-based Feel of the Market who analyzes the cattle market, said livestock producers are just starting to replenish their herds after a drought in recent years. As such, he doesn't expect prices to ease until 2017.

"It just takes so long — two to three years to a breed a cow. You have to get the calf on the ground, grow the calf and then butcher the animal," Hastings said.

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