The Not-So-Sweet Spot

Butter, milk, cream and eggs are the ingredients that give many desserts their delicious flavor and richness. But these are the same three commodities that have been soaring in price of late. Dessert manufacturers and their customers have had to dig deeper to either absorb these costs or raise prices on their own products and menu items.

“I’ve been watching dairy prices go up over the last months,” reports Jean Ives Charon, founder of Galaxy Desserts. “Butter is now $1.70 a pound and chocolate and eggs are also skyrocketing. I try to negotiate volume discounts with my suppliers and not pass the cost on to my customers.”

The USDA Agricultural Marketing Service (AMS) blames the basic laws of supply and demand for today’s high dairy prices. Although American milk production is up, international demand has escalated—a development the dairy industry didn’t expect. The Australian drought has caused a tighter worldwide supply and more U.S. exports are going to China, Russia and the EU. As a result, “nonfat dry milk powder and butter are double what they were a year ago,” says George Koerner of the AMS. He doesn’t expect things to improve at least until spring—the peak production period. This fall, school milk demand and a gearing up by dessert and candy manufacturers for the holiday season is also cutting into supply.

The scoop on product innovation

Ice cream is a penny business, claims Debbie Benedek, Sr. VP at NexCen Franchise Management, parent company of MaggieMoo’s, the 200-unit “treatery” chain based in Atlanta. To stay ahead of the competition—especially when the raw materials get pricey—innovation is key. “We’re constantly tracking consumer trends, exploring new partnerships that fit our brand (like cookie and candy companies) and looking for portable items that appeal to both kids and grownups,” she says.

When the craze for nostalgic, retro desserts hit a couple of years ago, cupcakes appeared on MaggieMoo’s radar. R&D caught the wave early and created the Ice Cream Cupcake—the only cupcake you can eat with a spoon. It’s composed of layers of chocolate cake, marshmallow cream, dark chocolate ice cream and a coating of ganache. The original cupcake was a big hit and now franchisees are creating their own variations on the theme.

MaggieMoo’s proprietary premium ice cream mix is produced in two facilities, then sold to franchisees through five distributors to cover the geographically diverse locations. Along with Marble Slab, another ice cream concept, MaggieMoo’s was purchased by NexCen Franchise Management earlier this year. In light of high dairy prices, this consolidation can leverage buying power across all the brands through negotiation of collaborative partnerships, securing of long-term contracts and locking in of lower prices, states Chris Dull, president of QSR for NexCen. “In addition, we have a VP of supply chain whose sole responsibility is to monitor the dairy industry and control costs. This function is unique for a QSR brand,” he adds.

What’s for dessert?

The NPD Group/CREST data show that 12 percent of restaurant patrons order dessert, so there’s lots of room to snag more customers. Here’s the percentage of meals that include the following desserts in the quickservice, family and casual sectors:

Soft serve ice cream: 2%
Cookies: 2%
Cakes: 1%
Pies: 1%
Hard ice cream: 1%