Thursday, April 21, 2011
Inflation is rearing its ugly head and restaurants are feeling the pinch of higher food prices. McDonalds and other chains do not want to pass that cost onto a beleaguered customer base:
McDonald's results landed a day after rival Yum Brands Inc (NYSE:YUM - News) reported strong China results that masked rising food and labor costs. Chipotle Mexican Grill (NYSE:CMG - News), which has nearly all of its 1,100 restaurants in the United States, saw higher food costs eat into margins.
McDonald's and other restaurant operators are getting squeezed by accelerating food costs and must figure out how to raise prices without scaring away already skittish diners.
"It's very hard to pass through price increase right now," said Stifel Nicolaus analyst Steve West.
McDonald's Chief Executive Jim Skinner said customers are getting "pinched everywhere. They should not suffer the same fate at McDonald's."
McDonalds is looking at a 4.0 to 4.5% increase in cost. They have already raised prices by 1% in the United States and are looking for other ways to make up for marginal losses without sacrificing long term growth. Other restaurants without the name recognition of McDonalds will not be so fortunate.