Energy, meat, vegetable and coffee prices are up. Pricing power is not. The result is a huge margin squeeze that affects profits at restaurants, hotels, cruise lines, and travel-related businesses in general. The Wall Street Journal picks up the story in As Food Prices Soar, Eateries Scramble

Soaring global food prices, particularly for meat, sugar and coffee, are putting pressure on the restaurant, travel and hotel sectors as they pursue a fragile recovery. In a bid to offset added costs without passing them on to price-sensitive consumers, many companies are scrambling to renegotiate contracts, find cheaper suppliers and reconfigure menus.



Marriott International Inc. has been coping with higher prices for beef, fish and chicken over the past six months, says Brad Nelson, a vice president andthe global corporate chef for the hotel chain. The company is also paying higher prices for sugar and arabica coffee beans, which have both soared over the last year. "It's a global challenge," says Mr. Nelson.



The company swung to a profit in the third quarter but, like many of its peers, struggled to raise room rates, doing so for the first time in two years in the second quarter. So far, it has ruled out raising food prices at its restaurants, instead re-engineering its menus to offer alternatives to popular and pricey cuts of beef such as filet mignon and New York strip.



Restaurant chain Johnny Rockets, known for its burgers, uses about eight million pounds of ground beef a year, and its prices have risen 20 cents a pound over the last two months, says Ray Masters, senior vice president of purchasing and distribution. To offset part of the increase, the privately held company has renegotiated its poultry costs, cutting them 5% for 2011, and its ice-cream prices are down 4%. Still, this won't offset the higher beef costs, Mr. Masters says.



While cruise operator Royal Caribbean Cruises Ltd. hedges against increases in cattle prices, that hasn't fully offset its rising costs for beef, says Chief Executive Richard Fain. Since the fall, meat prices have risen steadily for the cruise operator, which serves about 53 million pounds of beef, poultry, lamb, veal and pork a year. The most popular restaurants on the ships are steakhouses, Mr. Fain says.



"Meat is important to our guests," Mr. Fain adds. "We aren't prepared to sacrifice the quality and we can't raise prices enough to reflect it, so it ends up being a cost we have to absorb." Royal Caribbean is also paying more for citrus fruits and fish, particularly shrimp, another popular dish on its cruises.



Norwegian Cruise Line began using e-auctioning last year to find better food prices as commodity costs rose, says Chief Executive Kevin Sheehan. The company, which uses 34 million pounds of meat and 9.5 million pounds of seafood a year, has had higher costs for dairy items, meat and fish, he says.



Through e-auctioning, the cruise operator can specify what food items it needs and accept bids from suppliers. The competition keeps prices lower, says Mr.Sheehan.

PPI Index Up Again

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At the Crude Goods Level, producer prices are up 15.5%

At the Intermediate Goods Level, producer prices are up 6.5%

At the Finished Goods Level, producer prices are up 4.0%

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