The Restaurant Sector in 2010 and the Reality of Inflation
When we read the Wall Street Journal, New York Times, the Economist, Bloomberg Business News, Business Week, Forbes, Investor’s Business Daily, the Financial Times, and even the Beige Report from the FED we are told with graphs, charts, and pictures that there is deflation in the United States, not inflation. However, if you factor in certain industry sectors of our economy you can see that there is quite a bit of Inflation in many places – for instance food at the grocery stores.
Even if Wal-Mart rolled back prices on certain items like Catsup for a dollar, 2 liter bottle sodas for $.88, or corn for $.25 per cob, that doesn’t mean that we don’t have Inflation in the food sector of our economy. We actually do, and we could be witnessing higher prices of wheat worldwide which is used for many products, as well as the price of feed which increases the prices for meat. And speaking of meat, this is where the “rubber meets the road” for the restaurant industry.
As the economy decides whether it is going to slip back into a double dip recession or not, many companies are not rehiring, but they are getting ready just in case. That is to say they are reducing their labor force and lowering prices as a hedging strategy against further economic impairment. The low-cost high-volume strategy is commonplace during recessions, and that would include the restaurant industry. So on one hand the restaurant sector in 2010 will have to give deals to bring in guests to their eateries, yet on the other hand their cost of food will increase, due to inflation.
This is a Catch-22, and it doesn’t bode well for those that are unemployed who may work in the restaurant sector or for the shareholders equity and quarterly profits of the largest restaurant chains. And even still mom and pops restaurants, those great family-owned restaurants with great food in your local neighborhood and community will also suffer. Their costs will rise even more than the large chains, which can take advantage of purchasing power.
So whereas, we are told, nearly every day on CNBC, MSNBC, Fox Business News, and the other cable network business news stations that we are experiencing deflation, that doesn’t mean we can automatically apply that to any and all industries. And, as we watch oil prices come back up, this very much increases the price of food, because all food requires fuel for tractors, for shipping it to market, and to deliver it to the restaurants. The restaurant industry is not out of the woods yet, even if many of the larger chains are reporting greater profits presently, and so, I hope you will please consider all this.
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