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April 15, 2014
Burger restaurants have grown like crazy for a long time, but it’s starting to look like 2014 could be the year this segment hits the wall. Flat-to-down 2013 sales trends mixed with record high beef prices yields a formula that could spell trouble. Yet these same conditions could also open doors for operators in other segments who can be creative in how they menu and source beef items, particularly burgers.
It’s far from a perfect storm for burger concepts, but they seem to be facing more challenges now than they’ve had to deal with in the past.
On the demand front, it appears the saturation point may be at hand. “Burger chains have finally reached maturity as limited-service burger segment sales contracted in 2013,” Chicago-based Technomic reported last week. Growth can still be found in fast casual, where sales at the segment’s better-burger brands rose 10.4 percent last year. Segment leader Five Guys Burger and Fries has slowed its expansion to just five percent, yet chains like Smashburger (up 32 percent), Shake Shack (up 40 percent) and BurgerFi (plus 178 percent) were still in nonstop growth mode.
However, fast casual burger chains account for only about 3.3 percent of sales in the burger chain market. Overall, there’s just no growth.
On the other hand, demand for burgers is stable. If only the same could be said for the cost of the raw ingredients used to make them. Wholesale prices for beef now stand at an all-time high; are forecast to remain there for a lengthy period of time; and are hitting consumers hard.
The scariest data point here is that the U.S. cattle herd is the smallest it’s been since 1951, a time when the U.S. population was slightly less than half of what it is today.
The practical effect on many restaurant operators is that escalating beef prices have reduced margins to the point where something has to give—menu price, portion sizes, promotional offers or some combination of the three. Other operators, however, may see this as a time to grab burger business away from competitors. The key takeaway from Technomic’s analysis of the burger segment: “Although American consumers' demand for burgers will not decline, the biggest shift will occur in where they indulge themselves with a burger.”
One practice many operators may wish add to their routine is to monitor beef price trends regularly. Your meat supplier’s sales rep can give you some of this information. And you can always check weekly updates from the National Cattlemen’s Beef Association for yourself.
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