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Rising Ingredient Costs Hit Fast Food
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Smiling Colonel Sanders, busy waiters and waitresses, the smell of fried chicken wafting through the restaurant and a constant stream of customers in and out of the KFC outlet near Beijing Tian'anmen Square seems the same as before, yet prices on the menu board have quietly changed.

Restaurants, from international chains like McDonald's and Starbucks to the local operations Origas and Kungfu, have all increased prices slightly to absorb rising costs of ingredients.

KFC increased prices nationwide beginning July 16, with the biggest surge of 5 yuan for its family package and an average increase of between 0.5 and 1 yuan for sandwiches and beverages.

According to a statement of Yum! Brand Inc, KFC's operator, its chicken products, such as original recipe, wings and strips, will not be included in the price hike and it is the first time for the fried chicken giant to adjust beverage prices in a decade.

Though KFC's rival McDonald's did not announce price increase plans, it said there will be adjustments due to rising rents.

Prices at four Beijing McDonald's outlets in busy commercial areas, termed "luxury McDonald's" by consumers, were 0.5 to 1.5 yuan higher than at its standard outlets beginning last year. The burger giant now has 17 "luxury" outlets in the capital city.

Gary Rosen, vice-president and chief marketing officer of McDonald's China, said that because rental costs are diverse, prices in various cities, even places within a city, might be different.

Prices at Starbucks in Beijing rose the most, with increases ranging from 3 yuan to 6 yuan. Sun Kejiang, spokesman for Starbucks Greater China, said that price increases in Beijing outlets are not due to material costs but instead a move to keep the coffee chain's prices at the same level around China. Beijing's Starbucks coffee was somewhat cheaper than Shanghai before.

Along with foreign chains, Chinese restaurants have also changed price tags.

Pizza buffet operator Origas set price at 43 yuan per person after June, compared to 39 yuan before. Kungfu, a local fast food chain, increased prices by 2 yuan on average for each set menu.

Some famous Chinese restaurants, such as roast duck king Quanjude and Sichuan-style chain Meizhou Dongpo, have slightly increased prices of pork dishes. Some small- and medium-sized restaurants have not changed their prices, but have instead made serving sizes smaller.

"It is very natural for restaurants to change prices in line with supply fluctuations," said Pei Liang, secretary-general of the China Chain Store & Franchise Association.

Pei noted food prices, especially pork, beef, eggs and rice, have soared dramatically in recent months. He said it is understandable restaurant owners would raise their prices to offset the cost.

Statistics from the Ministry of Agriculture revealed that wholesale price of pork in China surged 74.6 percent in June compared with the same month a year earlier. The price of agricultural products as a whole rose 4.9 percent over May.

The costs of labor, water, electricity and rents are all also surging, said catering industry insiders.

"Smart businesses must keep a balance - trying to set the price at a level that customers can accept and companies can make a profit," said Pei, adding that the chains have advantages, as they have targeted the relatively fixed consumer groups, while it may be more difficult for small- and medium-sized operators, as consumers can turn from one restaurant to another.

Yet some experts note that increasing costs for ingredients is sometimes used as an excuse to raise prices, which may lead the government to intervene to protect consumers' interests.

Pan Jianmin, a customer at the KFC outlet near Tian'anmen Square, said that KFC's prices continue to be acceptable. "Prices of everything are increasing. I am accustomed to it," he said.

But "if prices of raw materials fall, will they reduce the price in tandem?" he said.

(China Daily July 25 2007)

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