April 27, 2011 / 2:03 PM / 8 years ago

Restaurants weigh menu price increases

LOS ANGELES/CHICAGO (Reuters) - Restaurants are weighing menu price increases to offset higher food bills against the risk of alienating diners as accelerating costs for beef, dairy products and other ingredients squeeze profits.

Diners eat at a restaurant in Oak Bluffs, Massachusetts on the island of Martha's Vineyard August 24, 2010. REUTERS/Brian Snyder

Brinker International Inc, which posted a stronger-than-expected rise in quarterly profit on Wednesday, said it may hold off on raising menu prices in a bid to steal market share from rivals.

Brinker’s mainstay Chili’s brand saw traffic and sales at established restaurants rise in February and March and executives said on a conference call that they would closely monitor the competitive bar and grill segment before making a decision on whether to boost menu prices.

Elsewhere, revenue at P.F. Chang’s China Bistro Inc rose less than expected in the latest quarter after it suffered lost sales and higher costs due to an immigration raid at Pei Wei locations in Arizona.

During the quarter, its namesake and Pei Wei chains benefited from price increases of 2 to 3 percent, but traffic also appeared to have softened.

Shares of Brinker were up 3.1 percent at $25.19 in early afternoon, while P.F. Chang’s stock was down 7 percent at $42.56. The Dow Jones U.S. Restaurant and Bars index was up 0.8 percent.

Eateries that cater to more affluent customers are feeling less of a pinch from food inflation. Late on Tuesday, Panera Bread Co posted a better-than-expected rise in profit and raised its full-year forecast.

The bakery-cafe company, which said it raised prices about 2 percent year-over-year, plans to raise prices again by roughly 1 percent in September.

Shares of Panera, which did not offset all of its higher food costs with price hikes, were off 0.6 percent at $123.63.

Meanwhile, Starbucks Corp is expected to report strong growth in sales at its U.S. coffee shops when it posts quarterly results later on Wednesday, as its higher-income customers likely shrugged off price increases.


Brinker’s overall sales at established company-owned restaurants rose 0.1 percent, helped by price increases. That included a 0.3 percent decline in same-restaurant sales at Chili’s, and a 3.4 percent increase at its smaller Maggiano’s Little Italy restaurant chain.

“The long streak of declining same-restaurant sales seems to be nearing an end at Chili’s as the bar-and-grill concept logged positive same-restaurant sales in February and March,” Miller Tabak analyst Stephen Anderson said in a client note.

The bar and grill sector is crowded and competitive.

Absent a significant reduction in the number of bar and grill restaurants, Anderson said, it will be difficult for Chili’s to generate the kind of same-restaurant sales growth needed to meet management’s goal of doubling company-wide earnings per share in five years.

P.F. Chang’s sales at restaurants open at least 18 months rose 0.5 percent at the Bistro and slipped 0.2 percent at the smaller Pei Wei quick-service chain.

P.F. Chang’s total revenue of $317.4 million fell short of analysts’ expectations of $320.4 million.

Thus far, it appears that restaurants have been able to offset some additional food costs with price increases. The question is how much more menu prices can go up before consumers — who also are dealing with rising grocery and gasoline prices — cut back.

Last week, McDonald’s Corp forecast higher prices for beef, dairy and other food items and said it would cautiously raise prices to keep attracting diners.

Chipotle Mexican Grill also said it planned to raise prices after higher food costs ate into first-quarter margins.

Reporting by Lisa Baertlein and Jessica Wohl in Chicago, editing by Matthew Lewis

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