The nationwide drought is threatening restaurants with higher food costs, but many chains say negotiating decent supply contracts, cutting other costs and raising menu prices for consumers will help protect their profits.
Dry, hot weather in the Midwest, which began in June, has damaged crops of corn and soybeans, which are critical livestock feeds that can drive up prices for beef and chicken. The drought also has scorched grass in pastures and hurt the production of hay, which cattle eat.
“We find the drought and corn [prices] to be at the forefront of investor concerns and suspect the upcoming harvest could meaningfully impact the industry,” said Will Slabaugh, a restaurant analyst at Arkansas-based investment bank Stephens Inc.