Restaurants may catch a break with falling costs

After suffering from cost inflation nearly all of last year, relief from sky-high commodity and energy costs is here, and restaurant bottom lines should stand to benefit from deflated prices by the second half of this year, said UBS Securities analyst David Palmer.

In a note to investors Wednesday, Palmer projected that most chains could see flat year-to-year cost levels by the June-ending second quarter and deflationary levels by the September-ending third quarter. Leading the commodity decrease is significantly lower year-to-year costs for seafood, produce and wheat, Palmer said. Milk and cheese prices are down about 40 percent year-to-year. Hamburger prices are about flat, Palmer noted, and market prices for chicken are slightly up from a year ago.

“Diminishing food costs should significantly help restaurant chains with company-operated units, and those that can maintain traffic without additional heavy discounting,” Palmer said.

Lower energy inflation also can help restaurants in the form of reduced energy, packaging and distribution costs, along with lower gas prices for consumers, which may spark discretionary spending.