Another strong week of price gains for commodities tracked in our commodity monitor. Here besides the table below detailing the moves, here are a few takeaways I think are relevant.
1) The increase of cheese prices continues, now up 23% YTD and gaining 8.2% on the week. As I wrote in last week’s note on commodity costs, this is significant for CAKE, DPZ, and CMG among others.
- CAKE COGs raised by 50 basis points last quarter largely due to pressure from cheese and dairy costs. CAKE’s commodity basket remains exposed and, week-over-week, the move in cheese (and dairy) prices is bad news for their margins.
- DPZ margins were negatively impacted by rising cheese prices in 3Q10. The company is facing difficult comparable restaurant sales compares over the next few quarters and gaining leverage over these rising cheese prices in the first quarter, facing a 14.7% comp last from 1Q10, may prove difficult.
- CMG, as I wrote last week, seeks to source as much of its ingredients as possible from local and organic sources which means margins face significant exposure to commodity headwinds. The company has been impressive in terms of its offsetting commodity costs with operational initiatives inherent in its business model. Given the magnitude of commodity cost increases, operational efficiency may not insulate CMG’s bottom line from cost inflation in perpetuity.
2) Coffee declined once again but, behind wheat and corn, remains on the podium as far as year-over-year changes go.
- SBUX reports today and they may take some comfort in the week-over-week decline in coffee prices along with the continuing pain of 66% year-over-year inflation in coffee prices.
3) Favorable chicken wing prices continue: good news for BWLD. See chart below.
Howard Penney
Managing Director
