Bloomberg News

Shrimp-Price Surge Makes Pad Thai More Costly for Diners: Retail

April 19, 2014

Shrimp Prices

In March, shrimp prices jumped 61 percent from a year earlier, according to the U.S. Bureau of Labor Statistics. Photographer: Chip Chipman/Bloomberg

Penny pinchers will be forgiven for skipping the shrimp scampi this season.

Prices for shrimp have jumped to a 14-year high in recent months, spurred by a disease that’s ravaging the crustacean’s population. At Noodles & Co., a chain with locations across the country, it costs 29 percent more to add the shellfish to pastas this year, and shrimp-heavy dishes at places like the Cheesecake Factory Inc. (CAKE:US) are going up as well.

Restaurant chains, already struggling with shaky U.S. consumer confidence, are taking a profit hit as prices climb. Even worse, the surge is happening during the season of Lent, when eateries rely on seafood to lure Christian diners who abstain from chicken, beef and pork on certain days.

“It’s coming at a tough time for the industry,” said Andrew Barish, a San Francisco-based analyst at Jefferies LLC. “With the Lenten season, what you’ll see out there is a lot of promotions with seafood, and usually shrimp is a big part of that.”

In March, shrimp prices jumped 61 percent from a year earlier, according to the U.S. Bureau of Labor Statistics. The climb is mainly due to a bacterial disease known as early mortality syndrome. While the ailment has no effect on humans, it’s wreaking havoc on young shrimp farmed in Southeast Asia, shrinking supplies.

Healthy Benefits

The syndrome has taken a toll on both restaurants and supermarkets, affecting a food that Americans increasingly see as a healthy alternative to meat. While shrimp is relatively high in cholesterol, it’s low in fat and high in protein and omega-3 fatty acids. U.S. consumption reached 3.8 pounds per person in 2012, twice the amount in 1984, according to the National Oceanic and Atmospheric Administration Fisheries.

James Johnson, a Jewel-Osco supermarket shopper in Chicago, has noticed the price increase. He’s been cutting back on one of his favorite dishes -- shrimp and potato soup -- because of the cost.

“I haven’t made it in a while,” the 29-year-old said. “Shrimp looks expensive.”

The Red Lobster chain helped popularize the crustacean in 1974 when it introduced popcorn shrimp nationally. Thirty years later, the restaurant debuted Endless Shrimp, an all-you-can-eat promotion. Even fast-food chains have sold the shellfish over the years. Burger King Worldwide Inc. (BKW:US), for instance, offered shrimp salads in 2004.

Pricier Choice

At Noodles, it now costs $3.34 to add the shellfish to a meal of pasta or pad thai, compared with $2.59 last year.

“We still want to at least offer it as choice,” Chief Executive Officer Kevin Reddy said in a phone interview. “As soon as the costs begin to normalize, we’ll return to the regular price.”

Cases of early mortality syndrome, which destroys the digestive systems of young shrimp, were first reported in China in 2009, said Donald Lightner, a professor of animal and comparative biomedical sciences at University of Arizona in Tucson.

The disease, which kills about 90 percent of the shrimp it infects, traveled from China to Vietnam to Malaysia and then to Thailand, he said. Cases also were reported in Mexico last year, Lightner said.

Thailand was the U.S.’s largest shrimp supplier until last year, when its exports to America shrank 38 percent. India took over last year as the U.S.’s biggest source of shrimp.

Operating Expenses

Shrimp costs rose about 35 percent last quarter for Orlando, Florida-based Darden Restaurants Inc., the company that owns Red Lobster. The climbing prices will add about $30 million to Red Lobster’s expenses in fiscal 2014 versus the previous year, Chief Financial Officer Bradford Richmond said.

Red Lobster’s Endless Shrimp promotion is due to return in August, putting more pressure on the restaurant chain. Last year, customers could pay $15.99 for unlimited shrimp, plus salad and biscuits. Justin Sikora, a Darden spokesman, declined to comment on shrimp prices and future plans for the Endless Shrimp deal.

“We see signs of progress emerging, but we don’t anticipate relief on shrimp prices until early fiscal 2015,” Richmond said on a conference call last month.

Bubba Gump Shrimp Co., owned by Landry’s Inc., hasn’t raised its menu prices yet because of the higher prices, said CEO Tilman Fertitta. The company expects shrimp costs to climb about 20 percent this year.

‘Wait and See’

Will menu prices have to rise to reflect that? “Probably,” Fertitta said in an interview. “We’re going to wait and see through this summer.”

At Cheesecake Factory, which sells shrimp scampi and shrimp-and-chicken gumbo, food inflation (CAKE:US) will be as much as 4 percent this year, driven primarily by increased shrimp and salmon prices. That will lower earnings by as much as 10 cents a share in 2014, the company said in a filing.

Popeyes Louisiana Kitchen Inc. is bucking the trend. While the fast-food chain is seeing shrimp costs increase 40 percent and doesn’t expect them to return to normal until the fourth quarter, it isn’t raising prices.

Popeyes restaurants, which are benefiting from lower chicken costs, have been advertising popcorn and butterfly shrimp as part of its Seafood Mardi Gras. The chain has about 1,770 U.S. stores, with 97 percent franchised.

“Even with the elevated pricing, it’s one of those offerings that the franchisees are willing to continue purchasing and featuring,” said Alice LeBlanc, chief global quality and supply-chain officer. “Everybody wants shrimp. They just love it.”

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editors responsible for this story: Kevin Orland at korland@bloomberg.net Nick Turner


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • CAKE
    (Cheesecake Factory Inc/The)
    • $49.54 USD
    • 0.08
    • 0.16%
  • BKW
    (Burger King Worldwide Inc)
    • $35.5 USD
    • -1.16
    • -3.27%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus