BP Oil Spill Impact: Will Restaurants Suffer?

NEW YORK (TheStreet) -- The oil leak in the Gulf of Mexico has become a concern for more than BP(BP). As the slick continues to spread throughout the gulf and to bump up against shores, the potential contamination of seafood has been a growing issue for restaurants.

While only about 20% of the seafood Americans consume is actually from the Gulf, consumer perception is a battle and may deter Americans from eating seafood until some signs of a clean-up are evident.

Seafood costs are also expected to rise, as one-third of federal fishing waters in the Gulf are closed, which could force restaurants to up prices. The casual dining sector continues to struggle from the economic downturn, with consumers slowly returning to dining out. Any rise in prices could deter this turnaround.

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Darden Restaurants(DRI), which operates Red Lobster, LongHorn Steakhouse, Capital Grille and Bahama Breeze, has arguably the biggest exposure to seafood.

Still, Stifel Nicolaus analyst Steve West does not expect any major pangs to the casual restaurant sector as a result of the oil spill. "We believe none of our casual dining group including BJ's Restaurants(BJRI), Brinker(EAT), Cheesecake Factory(CAKE), Cracker Barrel Old Country Store(CBRL), and Darden will be adversely affected from a cost perspective, and we urge caution against knee-jerk reactionary selling based on some sensational media reporting," he wrote in a note last week.

-- Reported by Jeanine Poggi in New York.

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