Analysts to restaurants: prepare for higher food costs

As the economy shows signs of improvement and restaurant traffic begins to rebound, operators may face higher food costs in 2011 and will need to mitigate those increased expenses without hurting customer visits, industry analysts said last week.

John Glass, restaurant securities analyst for New York City-based financial services firm Morgan Stanley, said, “Just as we are beginning to finally emerge from a deep downturn in traffic and sales, we are beginning see the potential for rising costs.”

He spoke during a webinar held by Morgan Stanley and Chicago-based market research firm NPD Group entitled, “The Restaurateurs’ Dilemma: How Chains Will Keep Traffic Growing in 2011.”

“Restaurant brands are going to have to walk a delicate balancing act in 2011 to both keep profits growing as well as continuing to grow their traffic,” Glass said.

Warren Solochek, vice president for the foodservice group of NPD Group, added, “We’re clearly on the road to recovery … The key driver will continue to be unemployment. Until employment begins to improve, it’s going to be problematic for the industry as a whole.”