Restaurant industry facing a squeeze from higher food prices

On Thursday, CNBC aired a segment on restaurant stocks, discussing the prospects for profits given rising food costs.

The December statistics from the Labor Department demonstrate the growing pressures on costs for eating establishments. The December PPI was up 1.1%. Food prices were up 0.8% primarily due to a 22.8% price hike in fresh and dry vegetables and an increase of 15.4% in the price of fresh fruits and melons.

Nation’s Restaurant News conducted a survey of restaurant operators that found that food prices will be a big issue in 2011:

  • 60% expect to raise menu prices in 2011
  • 5% expect to cut prices in 2011
  • 39% say higher commodity costs would pose biggest challenge

The guests on the CNBC segment were a bit split on their assessments of the restaurant industry’s prospects for 2011.

Dan Popowics, Fifth Third Asset Management

  • Operators will be reluctant to raise prices will look to rent or labor and hedging
  • Menu prices are a last resort

Peter Sorrentino, Huntington Asset Advisors

  • If operators don’t get squeezed then consumers will get squeezed
  • There is not much additional room to maneuver
  • Cost-cutting story is not going to work

Either way, the increasing “agflation” around the world looks ready to pinch U.S. consumers, businesses, and/or investors.

http://plus.cnbc.com/rssvideosearch/action/player/id/1742209481/code/cnbcplayershare

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