Record tomato prices squeeze fast-food sellers´ profits -
Wednesday, November 10, 2004 10:58:39 PM
Record tomato prices squeeze fast-food sellers' profits -
UPDATE 1 NEW YORK (AFX) -- Record-high prices for tomatoes threaten to squeeze earnings at U.S. fast-food restaurant chains, where they're a major ingredient in burgers, sandwiches and salads
This season's tomato harvest has been battered by series of calamities reminiscent of the Old Testament -- hurricanes in Florida, floods in California and pestilence in Mexico
A 25-pound crate of tomatoes is selling for $24, more than triple last year's $7 average price, and freight costs push the cost to about $30 a crate. With restaurants loathe to pass those costs on to consumers, a number of companies may see their bottom lines diced by rampant tomato-price inflation
"They're like gold right now," said Tina Fitzgerald, a buyer for Independent Purchasing Cooperative, the Subway franchisee that acquires the chain's fresh produce. "We've been tracking tomato prices for six years and they've never been this high. $16 at the point of shipping was the old record." The situation is dire enough that Wendy's cited the shortage as a contributor to its scaling back its 2004 earnings estimate to $2.19 to $2.25 a share from $2.25 to $2.30
Uncertain tomato supplies even forced the company to change its October marketing calendar, opting to advertise its kids' meals and chicken strips instead of the Chicken Temptation sandwich
"We decided to promote items that didn't include a tomato," said Wendy's spokesman Bob Bertini. "We just didn't want to advertise a sandwich featuring a plump, juicy tomato if there was going to be any question about supply or quality." Bertini added that Wendy's didn't have to change the recipe for the sandwich, or change any of its salads, and it monitors the tomato situation daily
"We have adequate supply, and the weather in Florida in the growing areas has been good," Bertini said
Still, UBS analyst David Palmer told clients in a research note, "of fast food names, Wendy's fourth-quarter EPS should be most impacted." Ironically, Wendy's generous use of tomatoes and its larger proportion of salad sales make its fourth-quarter health a more dubious proposition, said UBS's Palmer
McDonald's and Yum Brands likely will be better able to withstand the tomato-price onslaught, but not so much a factor of the relative healthfulness of the foods they sell. Rather, it's because of the contribution from their international businesses and a greater proportion of franchised, instead of company-owned, stores
However, CIBC analyst John Glass didn't quite buy Wendy's tomato excuse, noting that Burger King went ahead with its own tomato-laden chicken sandwich promotion just when Wendy's was pulling the plug on its own marketing campaign
Burger King, for its part, issued a terse statement in October to correct erroneous reports that it was selling -- horrors -- tomatoless Whoppers
"In the event that quality tomato supply becomes a future issue, Burger King Corp. has a contingency plan in place and will address any tomato shortages on a regional basis," the company said
Then there's Subway, which lay out its fresh tomatoes -- and cucumbers and bell peppers, which are also in short supply -- before all its customers to see and gives them away free
"We do not want to pass the costs on to the consumer, so we're not going to do anything differently," said Subway spokesman Les Winograd. "We're not going to change our prices or change our menu." Winograd said that if a restaurant in the chain were to have a situation where they couldn't get any tomatoes, or if they were substandard, then the policy would be to inform customers that the hurricanes have caused a tomato shortage
"And they would understand," he said. "They shop for tomatoes, too. But that would be on a case-by-case basis, and so far I'm not aware of any." If there is any consolation to be found for restaurateurs, the tomato shortage is forecast to end in about 4 to 6 weeks when growing areas in other parts of Florida are set to reap their harvests. That is, of course, if the weather holds up
"What we're waiting for is the crops farther south," said Fitzgerald. "So we'll be OK. Unless there's a freeze. Then it will be like nothing you've ever seen." |
