Analysts: Higher Costs in Store for Foodservice Operators

Restaurant industry analysts warned operators to expect higher food costs next year as the economy rebounds. In a webinar hosted by Morgan Stanley and Chicago-based research firm NPD last week, analysts said that restaurateurs will need to take the edge off those increased expenses without reducing customer visits, according to a report by

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." His comments were in a report by the Web site for Nation's Restaurant News on the webinar entitled, "The Restaurateurs' Dilemma: How Chains Will Keep Traffic Growing in 2011."

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."

Bigger restaurant chains are better positioned to deal with the effects of food cost increases, Solochek said.

The NPD Group highlighted some bright spots and challenges for the restaurant industry:

Competition from convenience stores: "We'll see an expansion of foodservice programs and an upgrade of foodservice programs for c-stores," Solochek said, according to the report. "Convenience stores are really very strong in morning and in the snacking-kind of dayparts. In 2011, that will be growing competition for a number of quick-service operators."

Breakfast: The bright spot for restaurants has been morning meals. New product activity and promotions have led to a positive trend, Solochek said, with breakfast daypart sales up 1 percent in the early part of this year.

He specifically credited Subway, which introduced a breakfast program that specifically enticed customers to make an extra visit to the chain, Wendy's, which is testing breakfast again, Panera Bread, which is making improvements in its breakfast operations, and Taco Bell, for experimenting with morning menus.

Evening meals: "Supper will continue to be very problematic for the industry as a whole," Solochek said. "They are coming in and taking advantage of the promotional offer," he said, "and not necessarily taking advantage of anything else on the menu."

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