Starbucks Corp. (NASDAQ: SBUX), reeling from declining consumer spending, is betting that healthier breakfast items such as a hard boiled egg platter will lure new customers. I wonder whether this gamble will pay off.

First of all, anyone who has eaten in a Starbucks can testify that food is not its forte. I just don't see people craving their morning Starbucks muffin. Plus, in places such as New York City, people have tons of breakfast options ranging from fast-food joints to delis to food trucks. They view Starbucks as a mid-afternoon indulgence. At least, that's how I thought of Starbucks when I worked in New York.

Getting people to change their breakfast habits will be difficult. In tight economic times, people will gulp down their morning meal at home. If they do eat out, they will look for cheaper alternatives than Starbucks. McDonald's Corp. (NYSE: MCD) has made serious inroads in the breakfast market, as has Dunkin' Donuts. Sorry, Starbucks lovers, but I found their coffee far less biter than Starbucks. I even have two bags of Dunkin' java (regular and decaffeinated) in my house.

"Shawn Hebb may have one of America's toughest jobs: convincing people that Whole Foods Market Inc. (NASDAQ: WFMI) can be an economical place to shop," according to The New York Times. I would beg to disagree. His job is the toughest, even harder than John McCain's campaign manager or Michael Vick's PR consultant.

Hebb is the guy who gives tours of America's most uptight grocery chain to convince shoppers that they do not necessarily need to spend $10 for an apple. How bad are things at Whole Foods that the company needs to teach people how to shop?

Whole Foods, down 48% this year, also may be a victim of its own success. Even my humble neighborhood grocery store offers a pretty good selection of organic goods such as Earth's Best baby food and Kashi cereal. I even bought some wild Alaskan salmon on sale a few weeks ago. Why on earth would I need to make a special trip to Whole Foods or any other upscale grocery chain given high gas prices.

Even more troubling, according to The Times, is that interest in organic food is leveling off. This leaves Whole Foods in a real organic pickle. "...a big question for Whole Foods is whether even its core customers will continue to pay prices like $6.99 a pound for all-natural, air-chilled chicken breast or $12 for a bag of cherries," the Times says.

Many customers are probably saying goodbye to Whole Foods and hello to Wal-Mart Stores Inc. (NYSE: WMT).

Benningan's, the casual dining chain where I had many bad dates, and Steak and Ale, a chain I never visited, have filed for Chapter 7 bankruptcy protection, underscoring how cash-strapped diners are not finding deals like unlimited breadsticks all that tempting.

The two chains, which are owned by billionaire John Kluge, have been in financial hot water for months, according to The Wall Street Journal. The paper reports that the chains were so broke that they did not have enough money to pay their employees for the rest of the week.

"Metromedia Restaurant Group (Kluge's company) earlier this year violated several terms of a lending agreement with GE Capital Solutions," the Journal reports. "It had been in negotiations with lenders for months to stave off the filing, while closing some stores and looking for a buyer, said two people involved in the matter."

Rising labor costs and soaring prices for food are killing casual dining chains. Cheesecake Factory Inc. (NASDAQ: CAKE) recently reported disappointing second quarter results, which featured the biggest drop in same store sales in the dining chain's history. Last year, activist investor Nelson Peltz acquired a 14% interest in the company. Brinker International Inc. (NYSE: EAT), owner of Chilli's Bar and Grill, and IHOP parent DineEquity Inc. (NYSE: DIN) are both down by double digits this year.

There is no hope for a turnaround in these companies anytime soon. Much like diners in these establishments, investors in these stocks are in for a world of indigestion.

Corn is used both in food for humans and as cattle feed. It is also the main ingredient of most ethanol-based fuels. There has been real hope that this kind of alternative energy will cut US reliance on gas. But, the price of corn is up 47% this year. That undercuts the value of ethanol as its price rockets.

The corn harvest in the US could be relatively poor this year, putting more pressure on food prices, both here and in countries where large numbers of people are under-nourished. Another run-up in corn could help drive yet another commodity inflation spiral.

According to Bloomberg, "Rainstorms sweeping the biggest corn states in the U.S. are damaging a crop that's already failing to keep pace with global demand."

The trouble with corn crops is that they cannot be easily replaced by any other agricultural product. And, there is pressure on wheat and soybean prices already.

The solutions to corn yields, are, unfortunately, long-term. Companies, led by Monsanto (NYSE: MON) are increasing research and production of genetically altered seed which will grow in harsh climates and poor soil.

But, that fix to the problem is several years off, and the acute problem is now.

Douglas A. McIntyre is an editor at 247wallst.com.

Shares in H.J. Heinz Company (NYSE: HNZ) are trading at a 52 week-high, on the heels of a better than expected earnings report. The AP reported that: "In the quarter, Heinz earned $194.1 million, or 61 cents per share, compared with $181 million, or 55 cents, a year earlier. Sales rose by 11 percent to $2.69 billion, driven by strong sales in Heinz's top 15 brands. Prices rose 4.5 percent while sales volume went up by 1.2 percent."

The company also raised its dividend by 9%. What's interesting about the report is that we are finally seeing food producers be able to pass on some of their costs to consumers. This obviously will spell continued inflation pressures going forward, but for the food producer it provides some welcome relief. With the soaring costs of food materials, the ones making all the money are those that are producing the materials. Those that take the materials and add value to them are getting crushed. Until now they have had to eat much of the increase in production costs, thus adversely impacting their bottom lines. The fact that Heinz is trading at a 52 week high is a testament to solid management.

This group has the potential to move higher. If we were to get a drop in food material prices -- nothing goes up forever -- stocks like Heinz conceptually could benefit.

For long term investors looking for a contrarian play, you may want to take a look at the food group.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 5/29/08.

Call it one of the smartest decisions in food retail this year. McDonald's (NYSE: MCD) will not pass on the cost of most food commodities to its customers. It will keep most prices on its menu where they are today.

According to Reuters, McDonald's "is willing to absorb some of the higher costs for ingredients such as oil, meat and dairy to promote customer loyalty," Chief Executive Jim Skinner said. The company won't let upward pressure on its products hurt its business.

Some may see the program as short-sighted, a move that will erode margins and hurt earnings for the next couple of quarters or more. But McDonald's has the financial strength to support the move. It may be a way for the chain to pick up market share as inflation takes a toll on its competitors. If it raises prices, McDonald's will simply look more attractive.

Look for McDonald's same-store sales to be better than the competition. It is giving consumers a real reason to stop by.

Douglas A. McIntyre is an editor of 247wallst.com and author of the Ten Stocks Under $10 newsletter.

The U.S. government now says the price of food will rise 5.5% this year. That revises an earlier estimate of 4.5%. According to The Wall Street Journal, "The forecast released Monday by the Agriculture Department is the third consecutive month the agency has raised its food-inflation forecast."

The number may be too low. The last federal government data showed the cost of food rising more than it had in almost two decades. The prices of rice, wheat and corn are still near all-time highs, and global demand is likely to move those numbers higher. The demand for ethanol is an often-mentioned reason for the price increase in corn. There is little reason to see that changing.

If food costs were going up by themselves, things might not be so bad for American consumers. But consumers are being beaten down by the "triple play" of rising gasoline and food prices coupled with difficult access to credit. Their need for money is rising and their access to it is dropping off.

Food is part of a problem, but only a part. Until the government comes up with a solution, consumer spending is going to be limited to bread and gas.

Douglas A. McIntyre is an editor at 247wallst.com and author of theTen Stocks Under $10 letter.

Recently, the Environmental Working Group stated that celery is one of the so-called "Dirty Dozen," the twelve most contaminated fruits and vegetables on the market. As I was chewing on a piece of celery at the time, I began to notice the bitter overtones of what I assumed was a nasty chemical fertilizer. I began to wonder if it might be sarin or perhaps some dioxin derivative. Completely unable to enjoy my snack any longer, I resolved to find some organic celery.

After a long and fruitless (vegetable-less?) search, I finally broke down and decided to go to Whole Foods (NASDAQ: WFMI) . There, tucked into an extensive and impressive collection of colorful veggies, I found what I was looking for: fresh, organic celery. The price? $4.99.

To be honest, if I'm paying $4.99 for a vegetable, I expect it to pick my daughter up from daycare and maybe help out with the rent. I'm used to paying between $1 and $1.25 for a bunch of celery, which made Whole Foods' prices seem like a particularly tasteless joke. However, rather than throw the celery to the ground and loudly denounce Whole Foods as a bunch of money-grubbing ripoff artists, I politely returned the bunch to the counter and left.

There were two reasons for my restrained response: first, I'm saving up my first arrest for something special, like picketing Anne Coulter's funeral, and there's no way I'm getting carted off for yelling at a bunch of celery opportunists. The second reason is that I wasn't really all that surprised. You see, I've gotten used to Whole Foods' massively inflated prices and somewhat snotty attitude.

Reuters reports that Wal-Mart Stores, Inc. (NYSE: WMT) posted better-than-expected revenue growth in the first quarter. As I suggested last month, this makes sense to me because Wal-Mart is the beneficiary of the recession diet.

The details suggest that Wal-Mart is becoming more popular than analysts expected thanks to its low prices and the squeezed consumer. Specifically, Wal-Mart sales rose 3.2% rise in April boosted by demand for basic items like groceries and medicine. Analysts, on average, were expecting same-store sales to rise 2.1%, according to Reuters Estimates; Wal-Mart had forecast a gain of 1% to 3%.

Why is this happening? People need food, shelter, medicine, and gasoline to drive back and forth from their jobs. And the price of all those items is rising. I estimate that the median family takes in $838 a week after tax. If that family fills up two tanks of gas a week -- that amounts to 40 gallons times $3.62 a gallon or $145 a week. That's 17% of the weekly budget compared to 15% a year ago when gasoline was $3.10 a gallon. Food prices have skyrocketed as well with rice prices tripling this year.

The New York Times reports that the market was up 190 points yesterday and has risen 11% in the last few weeks. Not only that, but AP says that the jobless rate fell to 5% in April -- better than the expected 5.2% rise. So does this mean that happy days are here again? No. And you should use today's rally to take money off the table if you have any.

Why? Things are not good for the consumer who accounts for 70% of economic growth. My mailman stopped me yesterday after my run and gave me a grim look. He is very friendly and talks to many people on his delivery route and elsewhere. And he told me that with gasoline prices so high, many people are canceling their vacations so they can pay their bills.

As I posted here, gasoline prices are gobbling up a bigger and bigger piece of the median family's income. And USA Today reports that worldwide food prices have skyrocketed 45% -- sending consumers on a recession diet. Businesses are having trouble getting money from banks because the banks still have $500 billion in hard-to-value assets which requires them to hold onto every scrap of capital they can get.

Shares of PepsiCo Inc. (NYSE: PEP), and Hershey Co. (NYSE: HSY) fell as investors were worried that soaring commodity prices would hurt profit.

Net income at Pepsi increased to $1.15 billion, or 70 cents a share while sales soared 13 percent to $8.33 billion. The company benefited from strong international sales. It also reaffirmed 2008 guidance of "high-single-digit net revenue growth" and earnings of at least $3.72. Analysts were expecting profit of $3.73 on revenue of $42.85 billion, according to Thomson Financial.

"We delivered a strong first quarter," said Chief Executive Indra Nooyi in the earnings release. "During the quarter, we faced the challenge of a macroeconomic slowdown in the U.S. and continued global commodity inflation, but the strength and breadth of our global footprint and portfolio helped us deliver strong first quarter results."

The picture at Hershey was hardly sweet. Net income fell to $63.2 million, or 28 cents per share, compared with $93.5 million, or 40 cents, a year earlier. Total cost and expenses rose to $1 billion from $942.7 million.
Revenue rose $1.16 billion. Analysts had expected profit of 39 cents on revenue of $1.17 billion. The chocolate maker also reaffirmed its profit of $1.85 to $1.90 on sales growth of 3 to 4%. Wall Street consensus is for profit of $1.84 on revenue of $5.09 billion.

The problems caused by food inflation have only begun.

Reports that Wal-Mart Stores Inc.'s (NYSE: WMT) Sam's Club and Costco Wholesale Corp. (NASDAQ:CSCO) were placing limits on the amount of staples such as rice and flour that customers can purchase have left me stunned. It makes me think of the food rationing that went during World War II.

Food inflation is getting out of control. Prices for everything from cereal to pastries have jumped. Pizza shop owners are getting squeezed by soaring costs for milk, flour and cheese. Rice prices alone have soared 68 percent since the start of the year, according to Reuters. Think of that the next time you order takeout from your favorite Chinese restaurant. No wonder demand for Food Stamps is at a record.

While Al Gore is busy preaching about global warming and environmentalists around the world hail ethanol as a solution to the "global warming" problem, the less fortunate, poorer countries in the world are in the midst of political turmoil as citizens riot and protest over soaring food prices.

As reported by Marketwatch: "In Egypt, headline inflation jumped to 14.4% in March, with the pace of food price rises soaring to 20.5% year-on-year from 16.8% in February. In addition, the country is suffering from shortages of bread, which is heavily subsidized by the government."