Inflation’s Dirty Effect On The Franchisee


The World Bank’s food price index rose by 15 percent between October 2010 and January 2011. In their report, the World Bank stated that the increase was largely due to price increases of sugar, fats and oils, wheat and corn. Corn prices alone have increased 73 percent since June 2010. Sounds like trouble!

High food prices are great for food producers but adversely impact small businesses, franchises and franchisees as their customers are more price sensitive. Consumers hate the idea of paying more for a product that cost less yesterday. Low commodities prices helped U.S. restaurant margins for the past two years but the increase in pricing will decrease restaurant-level profits drastically going forward. As a result of the rising inflation concerns, Goldman Sachs warned investors that restaurants such as Panera Bread Co. will struggle due to menus that depend on commodities that have seen elevated prices. Read on.

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