In restaurants, as with the broader equity market, yesterday was a quiet day. Besides the low volume and flat price action, there were a few interesting news items and divergences to note.
The most noteworthy category in my space yesterday was coffee. A surge in coffee prices yesterday raised concerns that costs are going up for coffee shops such as Green Mountain, Caribou, Peet’s, and Starbucks. The recent price movement in softs and foodstuffs (and commodities in general) suggests that these concerns are likely well-founded. This negative was offset by news emerging that Italian coffee maker Luigi Lavazza SpA agreed to buy a stake in GMCR. This news caused the small cap coffee names to outperform, perhaps on the suggestion that M&A activity may escalate in the category. SBUX bifurcated to the downside from GMCR, CBOU, and PEET. As side note, SBUX saw it necessary this morning to reaffirm guidance following the spike in coffee prices. The company stated, “We remain confident in our ability to manage this dynamic effectively”.
In other news, Zagat has released its 2010 Zagat Fast-Food Survey. In terms of stocks, RRGB received the “Best Burger” award in Full Service. PNRA and CAKE received the “Best Salad” award in Fast Food and Full Service, respectively. SBUX and IHOP (DINE) received the “Best Coffee” award in Fast Food and Full Service, respectively. In terms of value, MCD and Olive Garden (DRI) got the plaudits from the survey.
Commodities should remain front and center in investors’ models going forward. BHP’s bid for Potash, although it was turned down, supports my conviction that inflation is being factored into these price movements. Attention is slowly shifting from being firmly focused solely on the top line towards a more equal weighting of sales and margin trends.
Howard Penney
Managing Director
