The Superbowl may have been a good calendar catalyst for Pizza restaurants, but commodity costs ran straight up the middle against them over the last week. Of the commodity costs we monitored, cheese prices led the way, gaining +6.4% on the week. The week was more even for commodities overall, with beef, chicken, coffee, and sugar inflation notably slowing. Below, I give my take on a couple of important items that made major moves this past week.
- I would obviously be remiss not to elaborate on the move cheese prices made week-over-week and its implications for the restaurant space. Especially for the Pizza concepts (DPZ, PZZA, Pizza Hut), it is obviously a concern that costs are continuing to rise. Obviously contracts provide insulation from price volatility but, to the extent that those contracts are up for renegotiation, higher prices are a headwind. Particularly for DPZ, facing a difficult compare in the first quarter of 2011, this is a factor to keep a close eye on.
- Wheat prices are obviously important for many restaurant companies and they rose 4.6% week-over-week. News of countries building grain inventories as a reaction to food inflation and possible droughts impacting wheat crops in China drove prices higher recently. PNRA expects wheat costs for 2011 to be roughly flat versus 2010, as the company currently has nearly 75% of its wheat costs locked in for 2011, modestly below the 2010 price. Looking at the chart below, it is clear that the company is hoping that the easier comps, from a wheat cost perspective, offer them some relief. If prices go higher, wheat could cause some margin pressure for PNRA in 2H11.
- Chicken Wing prices declined 5.8% week-over-week. BWLD continues to enjoy chicken wing price favorability.
Howard Penney
Managing Director
