Food Cost Deflation Looks Likely, Says Analyst

  • Truist Securities analyst Jake Bartlett said the core building block of restaurant commodity costs, grain prices, are expected to decline.
  • Declining feed costs are encouraging, but rebuilding the herd takes time, added the analyst.
  • Chicken prices are expected to be down sharply in 2023, but to increase in 2024 as trade down from beef boosts demand.
  • Despite the recent news on avian flu outbreaks, the analyst expects egg prices to be down sharply in 2023 and 2024.
  • Industry expert Datum FS' David Maloni expects commodity deflation in '23 for all key commodities, aside from beef.
  • For Texas Roadhouse Inc TXRH (Buy rated, $110 Price Target), the analyst cites slower-than-expected economic recovery post-COVID, low off-premise sales, and operating cost inflation as possible risks.
  • The analyst said consumer demand in Shake Shack Inc's SHAK (Buy rated, $67 Price Target) urban markets may never fully recover due to work from home, urban flight and depressed tourism.
  • New store volumes and margins may disappoint as SHAK fills existing markets and enters smaller ones.
  • Chipotle Mexican Grill Inc CMG (Buy rated, $1,800 Price Target) may face heat from increased competition, operating inflation and reputational risk.
  • Darden Restaurants Inc DRI (Buy rated, $163 Price Target) could face issues like operating inflation, return of COVID outbreak, and macroeconomic headwinds.
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