The problem is a steep rise in the price of brisket – the thin cut of meat that’s the raw material for the smoked meat sandwich.
“It’s been soaring. Every month for the last year we’ve been hit with an increase, usually a $1.50 a kilo per month,” said Frank Silva, manager of Schwartz’s Deli.
Silva says the price of brisket has more than doubled in the last two years.
That means a standard smoked mean sandwich which cost $5.25 at Schwartz’s two years ago now costs $9.35.
It’s the same story at Schwartz’s rival, Dunn’s Famous, where the price of a smoked meat sandwich has gone from $6.75 to $10.
Dunn’s owner Elliot Kligman says even with that price increase, he’s still not passing along the entire increase in his costs to customers, meaning his profit margins have been reduced.
“We should be selling the smoked meat sandwich for $13, $14 a sandwich in order for us to be in our ideal food cost,” said Kligman.
Increased demand, decreased supply
The reason for the steep increase in the brisket price is a perfect storm of reduced supply coupled with dramatically increased demand.
Brenna Grant, manager of research services for Calgary-based CanFax, which tracks Canadian beef prices, said the price of brisket has increased 83 per cent over the last two years.
“It’s a long story in the making and it’s a global story,” said Grant.
The story begins with low beef prices in Canada from 2003 to 2010, which eventually led to the size of the Canadian herd being reduced by a quarter.
At the same time, drought and a lack of feed in other countries led to major herd reductions globally.
Just as global beef production became stagnant, there was a sudden sharp increase in demand.
“We have emerging countries that have growing populations and growing disposable incomes that are interested in protein,” said Grant.
“In 2013, China increased beef imports by 300 per cent.”
Customers loyal despite price hike
The lean supply and fat demand mean delis such as Schwartz’s and Dunn’s are faced with a huge increase in costs.
While profit margins are down at both delis, one thing hasn’t been affected so far: sales.
It seems customers are loyal to their smoked meat, in spite of the price of sandwiches nearly doubling.
“It hasn’t affected sales. Honestly I’m surprised. I’ve had one customer complain, but that’s it. I can’t say we’ve gotten hurt,” said Kligman.
Schwartz’s also hasn’t seen a dent in sales.
Friday customers crammed into the deli over the lunch hour as usual, with a lineup out the door.
As customer Joe Savoie cleaned up his plate, he said that the price increase would not deter him from returning to Schwartz’s.
“Everything goes up. This is a special place to eat, a special sandwich right here in Montreal, so for me it would have to double again before I’d say no,” said Savoie.
But both delis say if brisket prices continue to rise, they’ll have to increase sandwich prices even further, and eventually loyal customers may start reducing their smoked meat intake.
Light at the end of the tunnel
Brenna Grant from CanFax said there may be light at the end of the tunnel.
“We’re expecting brisket prices to stabilize in 2015, and prices will eventually drop down below the peak we saw in 2014,” said Grant.
Grant says the drop is tied to an increase in pork production, which has led to a decrease in pork prices.
She says whenever the price of one protein such as pork drops, beef prices tend to follow.
Elliot Kligman from Dunn’s said the price increase has made customers appreciate their smoked meat sandwiches just a little bit more.
“I think that the consumer has been educated recently to understand that the smoked meat sandwich is not a hotdog. It’s not a hamburger. It’s an upscale delicacy,” said Kligman.