May 3 (Bloomberg) -- The most expensive ingredient in the margaritas at Adobo Grill in Chicago isn’t the tequila. It’s the lime.
Costs for the fruit more than tripled in the past two months, squeezing profit margins before the biggest U.S. margarita bash of the year, Cinco de Mayo, according to George Ortiz, who helped start Abodo 14 years ago in the historic Old Town neighborhood, the home of The Second City comedy club and about a mile north of the Miracle Mile shopping district.
“We fresh-squeeze lime juice every day,” said Ortiz, 50. “We use it for table-side guacamole, fresh squeezed limes right there. We use it for ceviches. It’s a huge expense.”
Lime prices are surging as some growers in Mexico, which supplies about 97 percent of the fruit in the U.S., banded together to set prices after a crop disease ravaged trees. Americans spend about $2.9 billion annually on margaritas, which account for about 14 percent of the country’s cocktail sales, according to Technomic Inc., a Chicago-based research firm tracking the food industry.
“Cinco De Mayo is by far considered the biggest day for margarita sales in the U.S.,” David Henkes, a vice president at Technomic, said April 23. “It will disproportionately impact higher-end restaurants and those that tend to make from-scratch margaritas. You may also see restaurants and bars promote other more profitable cocktails if lime prices stay high.”
Retail-lime prices climbed to 56 cents per fruit as of April 4, according to the latest data from the U.S. Department of Agriculture’s Market News unit. One lime yields about 1 ounce of juice. By comparison, a 750-milliliter bottle of Zapopan Reposado Tequila is listed at a regular cost of $12.99 at online beverage-retailer BevMo. That’s about 51 cents an ounce. Ortiz said he spends about $23 on a bottle, while the equivalent amount of lime juice costs him $40.
Prices for limes are up 81 percent from a year earlier and more than double the cost in mid-January, the USDA data show. The Standard & Poor’s GSCI gauge of 24 commodities gained 4.5 percent in the past 12 months while the MSCI All-Country World Index of equities rose 13 percent.
Members of Mexico’s Citrus Growers Association of Apatzingan Valley limited supply to guarantee a minimum price for producers, Leonardo Santibanez, an association member and coordinator of its trade events, said in March. The group has been able to push up prices after crop disease in the neighboring state of Colima crimped production, making Apatzingan the main grower. Excess rainfall also hampered output. The USDA’s Foreign Agricultural Service does not track Mexico lime production separately from overall citrus output.
The Cinco de Mayo holiday commemorates the Mexican victory over the French in the 1862 Battle of Puebla and has become a celebration in the U.S. of Mexican food, culture and, of course, drinks.
Dos Caminos, which operates six restaurants, including four in New York, one in Fort Lauderdale, Florida, and one in Atlantic City, New Jersey, uses as many as 40 cases of limes per week. After prices climbed to about $100 a case from about $35 at the beginning of the year, costs jumped by $10,000 a month, Jaclyn Schwartz, a New York-based marketing specialist at the chain which is owned by BR Guest Hospitality Group, said in an April 23 e-mail.
“We are hoping that enough people walk in through the door to help us make up for the squeeze in margins,” Elias Mandilaras, a 32-year-old manager at the Dos Caminos midtown Manhattan location, said April 23. Last year, the six restaurants served 12,000 margaritas during the weekend of Cinco De Mayo. Limes are also used in some food recipes and in guacamole.
The USDA estimates consumer fresh-fruit prices will increase 3.5 percent to 4.5 percent this year, the most of any food group, according to an April 25 report. Drought in California will mean rising costs for produce from lettuce to tomatoes, according to Arizona State University in Tempe. Dry weather in Brazil spurred an 84 percent surge for arabica coffee this year, while orange-juice futures gained 15 percent.
Limes may not impact all U.S. bars celebrating Cinco de Mayo because only about 30 percent of the margaritas served nationwide are made “from scratch,” using fresh citrus juice, Henkes of Technomic said. Most of the drinks are made with a “ready-to-use” mix, he said in an e-mail. Most mixes don’t contain fruit juice.
In Mexico, lime costs dropped 25 percent in early April after soaring 41 percent in March and 68 percent in February, according to government data. The country’s consumer protection agency filed a complaint with the attorney general’s office last month against growers in Michoacan state for allegedly fixing prices and driving up inflation, Lorena Martinez, who heads the agency, said in an April 4 interview.
The price of the fruit doubled in the first four months of 2013 before the government sent troops to western Mexico to ensure the safety of farmers who were being extorted by drug cartels. In May that year, prices fell the most since 2011.
For Ortiz at Adobo Grill, expenses have stayed high, rising to about $120 a box now, from $30 in February, he said April 24. The bar uses 20 boxes a week, with each containing about 110 limes, or enough to make 2,000 margaritas. About 80 percent of the drinks served are garnished with lime.
Mark Malbone, a manager at Chavela’s in Brooklyn, said the restaurant decided this week to start garnishing drinks with lemon wedges instead of limes. Last year, the restaurant served 400 margaritas during Cinco de Mayo weekend, and they will continue to make the drinks with fresh lime juice, Malbone said April 30.
“Limes have become a cause of big concern, and we are losing 5 percent of our earnings because of higher prices,” said Malbone, who has been in the restaurant industry for 20 years. “We are hoping enough people flock in this weekend, and that the days of exorbitant lime prices end very soon.”
To contact the editors responsible for this story: Millie Munshi at firstname.lastname@example.org Patrick McKiernan