Restaurants should eat egg price increases

Pricing strategy is a daunting managerial task in virtually every industry segment. Price your product too high and risk losing customers; price your product too low and erode your bottom line. Although competitive strategists teach techniques that can maximize profits without jeopardizing client retention, there are always external, unforeseeable forces that can affect the profitability of a company, or in this case, that of an entire industry.

Currently, the restaurant business is facing yet another pricing dilemma caused by a shock to its supply chain. This time, the ingredient affected is so ubiquitous it can cause havoc to the entire industry. Eggs are the linchpin to many a recipe, and an egg shortage of epic proportions is scrambling eatery economics. The cause of the scarcity: the avian flu (commonly known as bird flu).

Sausage and eggs
Michael Pohuski | Getty Images

Since Jan. 1, approximately 6.2 million turkeys and 34.3 million chickens have been infected with the avian influenza, making this epidemic the worst outbreak in U.S. history. In an effort to curtail the spread of the virus, some 34.3 million chickens have been slaughtered, including 40 percent of the nation's egg-laying hens, sending egg prices soaring well over 100 percent from where they were a month ago.

To illustrate, the market rate for a case of 360, extra-large, grade A eggs in the New York tri-state area in April went for an average of $37.50. Compare that to today's rate of $78 per case, more than double the price of a month ago. And since more infected chickens are being disposed of every day, industry experts are expecting prices to settle somewhere in the $100-per-case range this summer, or 167 percent higher than April. The worst part, is that prices are not expected to come down until new egg-laying chickens are raised to take the place of those that have been disposed, and that can take up to 12 months.

Egg prices in turn affect other items that use eggs as a key ingredient, such as mayonnaise, dressings and baked goods. Even turkey, also affected by the flu, will see a dramatic increase in costs.

Read MoreWhataburger changes breakfast times, citing egg shortages

It creates a big dilemma for business owners like me and my family. If menu prices are not adjusted, restaurant earnings will suffer, particularly since the effects of this epidemic are expected to be so long lasting. It's a decision food managers dread: "Do I pass on the cost and risk losing some customers, and will competitors raise their prices as well , or do I absorb the cost and hope this will be a fleeting moment in the rear view mirror of the business."

It's fundamentally the same decision-making that is demanded in economic game theory but applied to something as basic as changing a menu; and new menus cost money, too (which is an additional expense that food managers need to consider).

Read MoreOhio cancels poultry shows at fairs amid bird flu outbreak

Ultimately, the patron will have to shell out more for their breakfast sandwich, but not immediately. It is expected that many eateries will choose to accept lower margins until a local competitor, or a nationally recognized chain, raises prices first. This would make it socially acceptable for food managers like me to raise menu prices, as well. After all, you should never be the first to flinch in a game of chicken. If you do, you lose.

Andrew Loucas is co-owner of the Laurel Diner in Long Beach, N.Y. with his father, Chris, and brother Peter. He has an MBA in marketing management from St. John's University.