To celebrate the holidays, we here at the Fool are devoting extra virtual ink to all things consumer-focused in a special section called "The 12 Days of Christmas." Over the coming week, we'll have our "12 Days of Content" surrounding consumer-focused names that look set to profit or perish from the holiday cheer.
In the classic Christmas carol, those "eight maids a-milking" evoke an image of comfort and plenty (at least from a secular perspective). Being of Foolish mind, however, the lyric instead got me thinking about dairy costs -- specifically, how potentially higher milk and cheese prices could affect popular restaurant and food-service names.
At least one analyst sees 2010 dairy prices climbing as much as 20%. The forecast appears plausible: As the recession caused milk prices to curdle, farm closures and forced livestock sales reduced the number of U.S dairy cows, setting the stage for a supply-driven price move.
To keep you and your portfolio from suffering a sour stomach, I've highlighted eight companies that could see their profits squeezed, should a pricier pint-o-cow come to pass.
Lactose shock for the caffeine kings
OK, so your favorite coffee retailer is obviously affected by the going price of coffee beans -- but a lot of milk and cream also go into all those lattes and light-and-sweets.
Through its 188 company-operated stores, the much smaller Peet's Coffee & Tea
Where's the cheese?
That's what McDonald's
In 2010, I'll keep an eye out for margin compression related to the company's slew of McCafe offerings. According to industry sources, the coffee beverages consist of as much as 80% milk. And although the majority of Golden Arches locations are franchised -- meaning that franchisees must shoulder higher costs -- McDonald's still derives the bulk of its sales from company-operated restaurants. Management is already competing with Starbucks and Dunkin Donuts in the coffee space, so offsetting potentially higher expenses with pricing adjustments might not be so easy.
Although it's a notch up from the quick-service ambiance of McDonald's, shareholders of casual-dining chain The Cheesecake Factory
Lower profits by the slice
Rounding out our list of food-service names susceptible to margin trouble, we arrive finally at the pizza purveyors.
First off, I'll caution investors on Yum! Brands
California Pizza Kitchen and Papa John's
Instead, investors who can't do without their pizza fix might consider Domino's Pizza
Ultimately, a pricier block of cheddar or gallon of grade-A homogenized won't put any of these companies out of business. But when market researcher NPD Group doesn't see restaurant traffic turning positive until the second half of 2010, caution is in order. In the end, dairy costs could be the difference between companies meeting or missing investor expectations.
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