SOURCE: The Bedford Report

The Bedford Report

November 26, 2010 11:25 ET

Surging Commodity Prices Cause Specialty Eateries to Invoke Risky Strategies

The Bedford Report Provides Analyst Research on Starbucks and Tim Horton's

NEW YORK, NY--(Marketwire - November 26, 2010) - The prices of corn, wheat, coffee and other commodities have surged this year in part due to a decline in US and Russian production prospects. While crop prices had a bit of pull back in early November due to Chinese demand concerns, the cold winter expected from "La Nina" has fueled speculation that even southern hemisphere crops may struggle, and once again sent prices up. The spike in crop prices has sent costs up for restaurants, and caused many notable companies to raise prices on some of their products. The Bedford Report examines the outlook for companies in the specialty eateries industry and provides research reports on Starbucks Corporation (NASDAQ: SBUX) and Tim Horton's, Inc. (TSX: THI). Access to the full company reports can be found at:

According to a recent report by The Wall Street Journal, costs have been driven up by growing demand for meat in China and other emerging markets. That's driven up grain prices, which in turn boost the cost of chicken, steak, bread and pasta. Grain prices also have been hiked due to a drought in Russia, planting problems around the world and speculative trading.

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Meanwhile, coffee production shortfalls in Latin America have recently caused notable coffee chains to pass increased costs onto the consumer. During Starbucks' fiscal fourth quarter earnings call the company warned that commodity costs are now expected to have an unfavorable impact on EPS of approximately $0.08 to $0.10, attributable primarily to higher coffee costs.

Raising prices is a risky maneuver, and a difficult choice for restaurants to make, as this strategy could scare customers from the more expensive products. A recent report from The Wall Street Journal argued that employment concerns could cause many Americans to merely trade down on brands.

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