Soaring chicken prices cut fast-feeder margins

Soaring chicken prices cut fast-feeder margins

Richard Martin

Soaring chicken prices cut fast-feeder margins

Soarng wholesale chicken prices have cut profit margins at some fast-food chains nearly in half, according to worried operators. Many of them are reluctantly thinking about raising menu prices.

As they worry about losing their price-value image, however, operators are rejecting the theory that chicken prices are rising because of the heat wave in the Southeast that has killed hundreds of thousands of chickens.

Meanwhile, poultry producers, rebutting allegations of artificial price inflation, said the unprecedented demand for chicken everywhere from burger chains to five-star restaurants could keep prices at or near their current high plateau–averaging about 70^ a pound for whole birds with giblets–long after the South’s chicken coops cool down.

Chicken chains are blaming the rampant stockpiling of breast meat by McDonald’s and Burger King for heavy contributions to spiraling chicken prices. They say McDonald’s imminent rollout of a chicken breast sandwich and Burger King’s planned renewal this month of advertising for its new Chicken Tenders product are principal demand factors.

Chickens have been slaughtered at lighter weights because of the heat wave, driving up the the cost for chicken chains with rigid weight-perportion specifications.

“But these hamburger chains are not chasing after the whole bird like us,” said a Church’s Fried Chicken executive. “They want the white meat, and they don’t care what it weighs.”

A chicken-price economist for the U.S. Department of Agriculture, discounting the impact of the heat wave, said the television image of drought-stricken farmers disposing of dead chickens “has always been good for at least an exra nickel a pound on the wholesale price.” But 90% of recent price hikes can be chalked up to high demand, another USDA analyst said.

CHICKEN CHAINS, naturally don’t like what they are hearing and like the effect on their profits even less.

“Even though chicken is perceived as more healthy and is the product of choice for many, poultry producers could wind up pricing themselves right out of the market,” said Donn Seidholz, marketing vice president of the Phoenix-based El Pollo Asado chain. The chain has suffered an approximate eight-point rise in food costs in a little over a month.

“We’d like to keep the price-value thing going for as long as we can, but it’s real difficult for us to make the kind of margins we want without raising our prices,” Seidholz said.

Prices to chicken chains in Phoenix and elsewhere in the West can run up to 10^ a pound higher than the national average. But El Pollo Asado’s recently increased cost for broilers–from 61^ a pound to 80^ a pound–reflects the approximate 25% nationwide price jump since midspring.

“It’s killing us,” said Sam Sibert, president of the Kentucky Fried Chicken division of Los Angeles-based Collins Fooods, which has deferred menu-price hikes at least until September. Last week Collin’s giant KFC Corp. analysts to expect a price decline by October.

“We’ll suffer the cost in margins over the short term,” said Bucky Kilbourne, senior vice president of Church’s Fried Chicken. “There’s more than enough competition in ‘fast-food america,’ and the last thing we want to do is raise prices.”

However, “There could come a point when [chicken is] no longer fast food,” Seidholz predicted.

IF 100-PLUS temperatures in the Southeast have subsided by the end of July, the average price for whole chickens could drop black below 60^ a pound by the end of August, according to USDA economist Allen Baker, who specializes in chicken prices.

But major poultry producers disagree with that forecast. “The demand on poultry is too high” to permit such a price decrease, said Dave Taylor, director of sales administration for Tyson Foods in springdale, Ark.

Regardless of drought, Taylor expects prices to remain at a new mid-60^-a-pound plateau, “unless you see a decline in people eating chicken in fast-food restaurants.” That is not a scenario Taylor envisions.

Optimistic executives of some fast-food chicken chains eventually “will have to change their minds” about increased chicken costs being a short-term, drought-related phenomenon, Taylor said.

Tyson, which sold $1.1 billion worth of chicken last year, says its estimated heat-death loss of fewer than 100,000 birds this year is not a significantly higher percentage than in other summers.

Other large producers concur. “There’s just been more demand this year than in any other,” explained Bo Pilgrim, founder and chief executive of Pilgrim’s Pride in Pittsburgh, Tex. The advent of nuggets, patties, tenders and other processed items and the addition of chicken “on so many menus everywhere, including the five-star restaurants,” will keep demand on the rise, Pilgrim asserted.

“The problem we have is we’re forced to buy the product,” said Collins Foods’ Sam Sibert, who is hopeful that price resistance by supermarket shoppers will help bring chicken prices back into line for everyone.

Chicken producers say expansion of their production capacities to meet rising demand is adding to the price hikes.

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