Ratatouille-stuffed zucchini boats, grilled salmon, fried chicken and vegetarian moussaka were a few of the items on the lunch menu last week at a corporate event prepared by Manhattan-based caterer Paul Neuman.  A year ago, those same food items would have cost the client about $11 a plate. Now Mr. Neuman is charging
$13, and next year he plans to raise the price another 8%.

“We're at the mercy of the markets, trying to charge prices that protect us against inflation,” says Mr. Neuman of his firm, Neuman's. “But we also need to make customers feel like we're not trying to take advantage of the situation.”

With rising food prices and volatile fuel costs cutting into profits, New York City-based food-service companies, like most businesses these days, are passing along their higher costs to their clients. But price adjustments are not enough. Caterers have also been forced to take other steps, including swapping out expensive food items
for cheaper ones, having vendors compete more for their business and implementing new technologies to help them manage their costs better.

And they're telling their customers to expect to pay more due to market forces beyond their control. Mr. Neuman says that a number of his clients' annual contracts will renew this fall with increases of 5% to 12%. For now, at least, caterers say most customers seem to accept the higher prices, but how long the goodwill lasts is anybody's guess.

“Nobody likes price increases, but people know what's happening. Everybody's budgets are shrinking,” says Trey Birdsong of Coleman Center, a meeting and training space in Manhattan, one of Mr. Neuman's clients.

This summer, prices for everything from dairy and eggs to meat and spices are at their highest levels since 1981, according to the U.S. Department of Labor's monthly Producer Price Index. The PPI in August shows that overall prices are 9.6% higher than they were a year ago. Consumer foods rose 9.1% in August compared to a year ago.

Looking for deals

In response to increased food prices, Jim Kirsch, chief executive of Abigail Kirsch Catering Relationships, one of the city's largest catering firms, is using the industry practice of “menu engineering” now more than ever to examine the cost of every food item that's served at a private party or corporate banquet. For example, the firm
is selling more leg of lamb instead of the pricier rack of lamb.

“We don't gouge, but our customers understand it,” he says.

Mr. Kirsch's 1,000-employee company takes advantage of economies of scale, pressuring suppliers for lower prices. And preferred vendors aren't quite so preferred now. He has stopped buying mushrooms from a big supplier and signed a yearly contract with a small, local and cheaper mushroom farmer instead.

Tracking futures exchanges

The firm's corporate director of purchasing tracks the futures exchanges to learn where the company can find bargains. Unexpectedly, for instance, beef suppliers are expected to be overstocked this fall because cash-strapped consumers didn't do much barbecuing over the summer.

But as eager as caterers are to find pricing alternatives, the realities of the marketplace can get in the way of innovation. When Mr. Neuman approached his clients with a plan to charge them based on a fluctuating price index, they shot it down immediately, along with the idea of signing quarterly rather than yearly contracts.

“That went over like a lead balloon,” he says. “People want the certainty of knowing the price for the entire year.”  Instead, Mr. Neuman will use his proposal as an internal tool to help his $7.5 million, 60-employee catering business track food costs for its 200 corporate clients.

Joe Iavarone, president of Iavarone Bros. Foods, which operates four prepared-food stores and two restaurants in Queens and Long Island, is now conserving and recycling edible oil—prices for which have risen 35% to 50% in the past year. IBF invested in a machine that filters cooking oil for re-use.

The company has also replaced an antiquated water-based refrigeration and air-conditioning system that constantly ran full blast. A new $200,000 computerized, air-based system adjusts and reduces energy use. This summer, Mr. Iavarone says, his energy bills were $10,000 lower than last years'.

IBF is saving on fuel costs by planning ahead and ordering full truckloads of supplies. It's exploring the idea of converting delivery trucks to run on used cooking oil.

And like Mr. Kirsch, Mr. Iavarone is getting tougher on suppliers. Rather than giving business to preferred vendors, IBF is ordering line items from spreadsheets that track prices among vendors.

“There are a lot of hungry vendors,” Mr. Iavarone says. “Now I pit them all against each other.”

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