What’s In Store for 2019?

by Peter Thor, President, Bellissimo Foods

Uncertainty! This one word, “uncertainty”, best describes our current external environment and what to expect in 2019. It is important because “uncertainty” by itself raises costs, creates confusion, and often delays important decisions. Further, the magnitude of uncertainty with respect to international trade is the highest in decades. Variable decision planning can help, and the purpose of this article is to suggest the most likely alternative scenarios and how to prepare for them.

Consider the 2018 imposed tariffs and other barriers including anti-dumping penalties levied against European and Asian products. Antidumping regulations on items such as Spanish olives and Italian pasta create market disruption and place a heavy burden on our industry. Tariffs levied on over $200 billion worth of Chinese products, including many food items, garlic and virtually all disposables used in restaurants are now subject to a 10% import tariff. But wait, now the scheduled January 2019 increase in tariffs to 25% of value has been postponed three months.

What will happen in March? Probably more uncertainty!

Likely economic environment challenges in 2019 will include:

  • Continued current tariffs on a broad range of food and non-food items
  • Rising interest rates and inflation
  • Labor shortage leads to rising payroll costs and employee turnover
  • By Q3 slowing economy
  • By Q4 expect the start of an economic recession

These are externalities, basically out of our control. What we can control is our reaction to these changes.  Menu engineering and promotion planning, adjusting the business to technology changes like on-line ordering and delivery, and employee team building are all critical to success, especially in an uncertain future environment.

Food costs and availability are a key place to start as it forms the basis of menu engineering and promotions. The good news is that food costs in general are expected to see low inflation and ready supply in 2019. The largest food cost typically is cheese. In December the USDA lowered its cheese and butter price forecasts for

2019 based on recent price weakness. Cheese costs have been relatively weak during the last quarter of 2018 and are expected to remain in a tight band of production cost, most likely based on CME block basis range $1.50 – $1.65. Distribution costs from cheese plants will be higher and major producers have raised their overage due to higher transport and trucking costs which may add 3-6 cents a pound in 2019. The recent sale of two cheese plants and industry consolidation may also impact production capacity of mozzarella.

2018 will likely end the record production and consumption levels of poultry, driven by chicken.  Production capacity increasing faster than consumption has been a boon for buyers as wholesale prices for several parts are the weakest in years.  Recent prices for breast meat are the lowest on record.  Price forecasts for chicken and wings suggest near term weakness at current levels, with potential modest increases in the spring and summer of 2019.  With grain costs stable, 2019 is expected to be another record production year; and chicken represents the lowest cost protein relative to beef and pork.

Beef and pork prices for input in sausage and pepperoni have trended lower in recent weeks, reflecting modest declines in costs of those products. Several factors, however, may result in increases later in 2019. Production costs at current prices suggest cattle sold out of feedlots are at a loss, suggesting lower production going forward. Also, demand will increase seasonally in the spring which will tighten supply. Prices are expected to trend higher for beef.

Pork is different with historic export demand dampened by tariffs and a record hog slaughter, up 5% versus last year. Inventories are high, and weak prices are reflected in the market. The potential for China’s swine flu in pigs, however, could change global meat supply and demand dynamics as US export increases effect domestic prices (↑) while export decreases have the opposite effect, pushing prices ↓.

Taking into account the above environment, now is the time to make menu changes, develop specials, and plan promotions based on expectations for low cheese and poultry costs. Building inventories of disposables and longer shelf life imported items will also save you $ over the coming year. Calculating plate costs using current commodity pricing levels may uncover some opportunities for growth. Market share increases by the major chains have not been based on food quality, but rather their technology enabling ease of on-line ordering.

If you’ve not developed a business website and credible on-line ordering capability we suggest checking out www.e-tab.com, a Bellissimo partner who can help. For more information on costs or trends referenced in this article or more information on how to get started with menu engineering or on-line ordering, please contact your Delco Foods Sales Representative. We wish you the best for 2019!

 

 

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