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Commodities Costs Have Restaurants Cutting Closer To The Bone

After trimming the obvious fat, restaurant chains are now having to cut closer to the bone as they look for ways to combat rising food costs and preserve healthy margins while avoiding significant price hikes.

"There's only so much low-hanging fruit. After that, you've really got to strive to get the rest of it, so this year is going to be a little tougher," said Alice LeBlanc, chief global supply chain officer for AFC Enterprises Inc.'s (AFCE) Popeye's Louisiana Kitchen.

Most restaurant chains are expecting their commodities costs to rise as much as 4% this year, but can only afford to push prices up enough to offset half of that without losing market share.

The fried chicken chain was able to trim about $16 million off its costs in 2010, bringing franchisees one percentage point of improvement in restaurant operating profit margins before rent compared with the prior year.

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