Rising Meat Prices Threaten Restaurant Chains' Bottom Lines

Beef being prepared to cook. ( Victor J. Blue, Bloomberg )

Meat costs are finally going up, and that’s weighing on a dining industry that’s already reeling from rising minimum wages.

McDonald’s Corp. warned investors Tuesday its 2019 commodity costs in the U.S. could rise as much as 3 percent, more than the 1 to 2 percent inflation it had forecast just three months ago. Brewhouse chain BJ’s Restaurants Inc. last week said it’s expecting increases in pork prices, while China’s KFC operator Yum China Holdings Inc. said spiking poultry costs will weigh down margins for the rest of the year.

A swine fever that’s decimating China’s hog industry is part of the problem, with meat processors around the world rushing to make up for shortages caused by the outbreak. Pork supplies are tighter across the U.S. and Europe, pushing up protein prices across the board as companies look to substitute with more chicken and beef. Restaurants, also facing higher labor costs across the U.S., are being forced to raise menu prices as a result.

At Texas Roadhouse Inc., an American chain specializing in steaks, higher prices are on the menu, with customers paying as much as 3 percent more as it tries to offset rising costs. “That’s going to go a long ways on margins,” said President Scott Colosi.

Higher menu prices come on top of the more expensive sodas and diapers Americans are already ponying up for in the grocery aisles. That may get the attention of Federal Reserve Chairman Jerome Powell and his colleagues as they watch for signs that inflation is finally perking up.