Investors Cool To Top Food Stocks <b></b>

New York City-It was a topsy-turvy world for food-servicestocks in the first quarter of 2001, as some of the top restaurantoperators found themselves on a precipitous slide down the WallStreet trash chute.

The biggest casualties included last year's hottest IPO,Krispy Kreme Inc.; the two biggest public burger chains,McDonald's Corp. and Wendy's International Inc.; andupscale steakhouse operator Morton's restaurant group. All fourfinished among the 10 worst performing stocks in the industry forthe three-month period ended March 30.

Several analysts noted that rising utility costs seem to betaking more of a toll on quick-service restaurants than on casualdining, because they have a significant impact on the smalleramount of discretionary income available to typical core users.

"Clearly the fast-food industry remains a difficult one,with all five national, non-pizza fast-food concepts-Wendy's,McDonald's, Burger King, KFC and Taco Bell-struggling togenerate meaningful same-store sales growth," Salomon SmithBarney analyst Mark Kalinowski said. "This condition maypersist for some time."

Among the conditions he cited that were having an impact on therestaurant industry were rising utility costs, the prospect ofrising meat costs and public concern over safety in the meat supplybecause of problems in Europe, the increasing cost of labor and aslowdown in the economy.

Still, according to Bank of America securities analyst AndrewBarish, "Solid restaurant industry fundamentals have continuedinto 2001 despite the many signs of a slowing economy and acautious consumer."

One of the big reasons for his confidence, Barish said, is theevolution of restaurants from "a consumer cyclical to aconsumer staple" status, meaning that dining out has becomemore of a "life necessity" than a luxury.

The biggest beneficiary of that change is casual dining, Barishsaid. He noted that the movement of the baby-boomer generation intotheir higher-spending years and their "propensity to dineout" has led him to project same-store-sales gains for casualdining of between 3 and 5 percent. That's higher than the QSRprojections of "slightly slower than 2 percent to 3 percentgains." -Nation's Restaurant News

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