While the food & beverage exchange traded fund (ETF) can be sustained by companies raising the prices on their menus, companies can’t differ costs to their customers indefinitely during times of high inflation, even with an improving economy.
Food industry analysts and insiders believe that the impact of rising food costs on the bottom line and rising gas prices on the top line haven’t been factored into current stock prices, comments Herb Greenberg for CNBC.
Allan Hickok, head of the consulting firm of Restaurant Retail Strategies in Minneapolis, said that “most restaurant chains are significantly understating inflation plus the sales impact from rising gas prices.” Furthermore, without factoring in higher gas prices, companies and analysts are looking at overly optimistic projections, Hickok adds.
For now, no one is voicing anything but optimism and hopeful projections, but restaurants could be vulnerable to spiraling food prices since their business is basically based on food.
For more information on the food industry, visit our food & beverage category.
- PowerShares Dynamic Food & Beverage (NYSEArca: PBJ) has, for now, held fairly steady, managing to eke out about a 3% gain in the last month. It’s hardly lighting the world on fire, but it can be seen as a positive if high food prices erode fast food profits.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.