Eye on Commodity Prices

Commodity prices continue to look favorable for the restaurant companies on a YOY basis. Even chicken, which is the only commodity within the more prevalent restaurant basket of commodities that has been up on a YOY basis for the first half of 2009, is now flat with 2008 prices. Milk and cheese prices are maintaining their historically low levels but have increased slightly in the last two days. Gas prices, which have moved higher rather steadily year-to-date (up 57%), have come down slightly in recent weeks.

Commodity outlook from those companies first to report earnings:

YUM 2Q09 earnings call: "Despite a slight sales decline in U.S. sales, we saw second quarter restaurant margin increase by over two full points. We are seeing a dramatically improved commodity cost environment in the U.S. For the first time in quite a while, we saw commodity cost deflation of $4 million in the quarter....In fact, we expect to see significant improvement in year-over-year commodity costs in both the U.S. and China. For the balance of this year, we anticipate commodity deflation of about $10 million in the U.S. and commodity deflation of nearly $50 million in China."

RT 4Q09 earnings call: "In general, we continue to experience favorable commodity costs....Our commodity cost was solid, we don't anticipate really any increases there for this year."

Based on RT's and SONC's comments at an investor conference this week that they are seeing a heightened level of discounting now even relative to recent months, this increased commodity favorability may not be enough to protect margins. To that end, Chili's launched a promotion earlier this week for a $20 three- course meal for 2 guests. The nationwide, limited time offer includes a shared appetizer, two entrees and a shared dessert. Chili's offer follows Applebee's popular 2 for $20 deal, which does not include dessert. With deals like this becoming the norm, restaurant margins are at risk in 2H09 even in light of the YOY decline in commodity prices.

Eye on Commodity Prices - Commodity prices

Eye on Commodity Prices - Commodity chicken

Eye on Commodity Prices - Commodity milk

Eye on Commodity Prices - Commodity cheese

 

 


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