Dashboard: Unit Level

Dec 5, 2022 | Dashboard, Restaurant Research

Despite healthy comp growth prospects, unit-level P&Ls remain pressured by substantial food cost inflation (and labor inflation to a lesser extent) that far out-distance menu price increases which operators can pass through. The issue is how much pricing can be passed along before even more affluent consumers become tapped out. At least restaurant players have been successful at keeping their menu price increases below the level of the grocery stores, helping propel food-away-from-home for now. Fortunately, the industry benefits from near-term prospects of moderating food and labor inflation which is key if EBITDAR margins are expected to regain lost ground over the last year. In any case, we recently came across Executive Order 14008 (signed 1/27/21) which could have very important going forward implications about food price inflation (we urge readers to review an analysis & summary of EO 14008 here).

Unit Level Dashboard
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Lockdowns Tipped the Balance of Power to Employees in Low-Cost Cities

Why has consumer spending held up so well during a period of huge and punishing inflation? As it turns out, the long-term impact of the covid lockdowns was most notable for the lowest income demo who saw their hourly wages increase the most relative to all other earners. While this momentum is slowing, this development continues to have important implications for inflation prospects and the start of the 4Q22 corporate earnings season.

What’s up with Egg Prices?

How does a -3% decline in table-egg production translate into December’s 2x+ egg price increase? That’s a good question for someone…

Could Retail Traffic Declines be Attributed to Excess Mortality Rates?

Traffic declines across the board in both restaurants and grocery stores suggest fewer people eating. The shocking statistic is that 2021 life insurance payouts were much higher for group plans typically associated with young, healthy corporate employees relative to individual policyholders. 

Farmers Need More of the Profit Pie to Fund Needed Capacity Increases

The farmer’s share of a $1 food purchase has been steadily decreasing to just 14.5% of the total, according to USDA data. This provides a compelling clue about why food production has been strained, and correspondingly, why food cost inflation is out of control.

Did Investors Forget about December’s Bomb Cyclone?

December’s preliminary retail sales release spooked investors who smell a recession. Normally, this would be a boost to stocks because of expectations that the Fed might start to adopt a more dovish stance. However, this represents the first time that investors have finally come to believe that Powell & company intend to keep interest rates inflated, even if hell freezes over. 

The Middle Class is Losing Share Post-Covid

A strong middle class is critical to a healthy economy as this cohort spends a larger portion of their income (relative to the rich) on goods & services that drive growth. 

Noblesse Oblige for the Masses

A healthy society is marked both by a reasonable distribution of wealth along with an investment focus on productive assets that can help all of society. An unhealthy society is marked by a concentration of wealth in the hands of a few who are focused on preserving their ability to purchase self-indulgent pleasures.

Potential New Home Buyers Seem to be Conserving Cash for Necessities

KB Home’s 4Q22 results exemplify the impact of depressed consumer confidence levels as evidenced by a sharp pull-back of potential new home orders from first-time buyers that largely have the financial means to complete the transactions (even with elevated mortgage rates). While KB is working hard not to discount its inventory to drive 1Q23 sales, this pullback certainly will have mid-term implications if confidence levels don’t begin to rebound soon.

Performance Food Group (PFG) Investor Presentation – January 2023

For some time, the market has been held captive to the Fed’s interest rate hikes and prospects about future actions to fight runaway inflation. Further, the Fed has been telling us that labor costs represent the main inflation culprit. However, comments from a recent PFG investor presentation reveal that the real cause of labor inflation is not something that interest rate hikes can solve.

Small Businesses Are the Lifeblood of Economic Growth

Policymakers need to protect and encourage small businesses because of the critical role they play in driving growth during tough economic times. While consolidation may sustain margins and large companies during downturns, the economy needs to grow its way out of our current problems.

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