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Super-sized Hogwash: Examining the Chain Restaurants’ Rhetoric about the RFS and Food Prices

February 27, 2014


It has been reported that chain restaurant executives and franchise owners are on Capitol Hill this week pushing for the repeal of the Renewable Fuel Standard (RFS). Despite the fact that wholesale food and feed commodity costs have fallen dramatically over the last year, the chain restaurants are outrageously suggesting the RFS is increasing food and commodity prices. Here are the facts: Food commodity costs for restaurants are trending down—not up The chain restaurant group has apparently overlooked the fact that most food commodity, input, and ingredient prices have plummeted over the past year. The International Monetary Fund's Commodity Food Price Index has fallen nearly 10% since last summer and is almost 13% lower than levels reached in early 2011.[1] Similarly, the USDA's Producer Price Index shows that price inflation for crude foodstuffs, intermediate foods, and finished consumer foods is trending downward.[2]   Consumer price inflation for restaurant food is also trending downward Contrary to the chain restaurants' claim that "higher costs will be passed on to consumers," the prices that consumers are paying for restaurant food are advancing more slowly in recent years. According to USDA, restaurant food prices increased just 2.1% in 2013, lower than the general inflation rate and well below restaurant food inflation rates in previous years.[3] Average food price inflation at restaurants has actually been lower in the last four years (2.1%) than it was in the previous five years (3.5%). The bottom line is this: consumers are not seeing unusually higher prices when they dine at restaurants.   The restaurant sector is thriving Despite the doomsday rhetoric that the chain restaurants are spreading across the Hill this week, the facts show the restaurant industry is thriving financially. According to the National Restaurant Association, " sales are expected to hit a record high in 2014."[4] In fact, the NRA says " service sales are projected to total $683.4 billion in 2014, up 3.6 percent from 2013."  For 2014, 75% of casual dining restaurants and 83% of fine dining establishments expect profitability to increase or remain about the same as in 2013. Further, the NRA's most recent Restaurant Performance Index report states that "Restaurant Operators Are Generally Optimistic about Sales Growth."[5] Moreover, a quick examination of recent earnings statements shows strong performance for chain restaurants participating in this week's fly-in. Politico identified Arby's, Domino's and Wendy's as being among the chain restaurants lobbying against the RFS this week. Here is a look at recent statements about the financial performance of those companies. Clearly, the RFS is NOT having the outsized impact on these businesses that they claim.
  • Arby's: "The Arby's Brand is entering 2014 strong, posting annual same-store sales (SSS) figures that outperformed the [quick service restaurant] industry in 2013. As the Brand prepares to celebrate its 50th anniversary this year, recent sales figures showcase that the Arby's Brand is thriving within the quick service restaurant (QSR) space and is well-positioned for continued growth."[6]
  •  Domino's: "In the United States, Domino's opened 58 net new locations, its first year of major net unit expansion since 1997...Domino's net income for the year rose 27.2 percent, to $143 million, or $2.45 per share, on a 7.4-percent increase in revenue, to $1.8 billion, reflecting same-store sales gains of 5.4 percent in the United States and 6.2 percent internationally. 'My headline take on our full year was that we again drove great results, and we're very happy with the progress made in 2013,' chief executive Patrick Doyle said during the company's earnings call."[7]
  •  Wendy's: Wendy's Co. said its fourth-quarter earnings rose 25% as the fast-food chain offset a decline in revenue with lower expenses.[8] Wendy's CEO Emil Brolick reported that 2013 saw "...record average annual sales of $1.51 million at North America Company-operated restaurants. Most importantly, the progress we've made with our various initiatives has positioned the Wendy's brand for further growth in 2014..."[9]

[1] [2] [3] Ibid. [4] [5] [6] [7] [8] [9]