Soaring beef prices are hitting restaurant companies at the wrong time.
The price of beef has hit record levels this summer, hurting operator profitability just as much of the industry is pushing discounts as heavily as they ever have.
On Thursday, for instance, Burger King owner Restaurant Brands International said that beef costs are eating into operator profitability. The company said that its beef costs are up in the “high teens” compared with 2024.
Executives suggested that the higher costs and lower profitability could influence the pace of remodels at the chain, a key strategy. The company said that it still expects about 400 store remodels this year. But the future could be up in the air.
“We’re mindful of the commodity cycle and impacts on profitability as we manage future remodel schedules with franchisees,” RBI CEO Josh Kobza told analysts.
“Beef prices have been elevated, and that does have some impact on our franchisees’ profitability,” he said later. But, he said, “it’s not going to change our long-term plan.” Burger King still expects 85% of restaurants to be remodeled in the coming years.
The price of 81% lean ground beef is up about 16% over the past year, according to Beef Checkoff. And just about every other cut of beef is up in the mid-to-high teens compared with a year ago.
That’s coming at a time when restaurant chains have relatively little in the way of pricing power while consumers dine more frequently on deals than they have in decades. Nearly three out of 10 restaurant visits is on a deal these days, according to the data firm Circana.
At Shake Shack, beef prices are expected to be up in the mid-teens in the second half of this year. But the company is taking steps to avoid major price hikes.
“Planned savings in our supply chain and continued improvements in operations afford us the opportunity to offset a meaningful part of beef inflation without having to take outsized price and still expanding our restaurant margins,” CEO Rob Lynch told analysts Thursday, according to a transcript on the financial services site AlphaSense.
The price of beef is up largely because cattle herd levels are at multi-decade lows, according to the U.S. Department of Agriculture, driven by a combination of drought, labor shortages and high grain costs.
While most beef consumption does come domestic sources, the U.S. has been importing more beef in recent years, according to the USDA, and tariffs could have another impact on costs.
The problem with beef, however, is that it takes years for ranchers to rebuild herds, because it takes years for cattle to grow from birth to slaughter, rather than the months it takes for chickens, for instance. As such, it could be 2027 or 2028 before the higher-cost cycle fully abates.
Meanwhile, demand for beef isn't waning, which is good generally for restaurants but bad for prices.
Texas Roadhouse same-store sales in the second quarter rose 5.8%, and LongHorn Steakhouse same-store sales rose 5.5%. Both were far higher than the 1.5% average for casual-dining chains and, indeed, only Chili’s and its 24% result performed better among full-service brands.
Rising beef costs did eat into LongHorn’s profit margins, for instance, in parent Darden Restaurants’ fiscal first quarter. Profit margins for LongHorn declined 60 basis points compared with a year ago, to 17.4%, which the company blamed on higher-than-expected beef costs.
The higher cost of beef has led some companies to shift more of their menu development to chicken, which is cheaper. But a lot of companies are focusing more on chicken regardless of commodity issues, such as McDonald’s, because of its overall popularity.
Other chains are still focusing on beef. Chipotle Mexican Grill reintroduced Carne Asada last month despite higher beef costs, for instance. And Burger King has continued to focus on the Whopper even though many of its rivals, including McDonald's and Wendy’s, have pushed more chicken.
“We’re a burger chain,” Patrick Doyle, executive chairman of Burger King-parent RBl, said in an interview with Restaurant Business. “There’s a lot of focus even by people outside the chicken category on chicken. But at the end of the day we are always going to be known for our flame-grilled burgers, and we’re going to continue to lean into that.”
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