RR Insights Journal – Dec

Dec 20, 2021 | Insights

New Build Costs Through the Roof

  • According to RR’s just released New Unit Investment Report (Report Outline), the sales-to-investment ratio for $1B+ chains declined dramatically in 2021 as higher construction costs (partially reflecting longer project completion times) more than off-set growth in new build AUVs.
  • Fortunately, higher AUVs (SSS for the $1B+ Chains are up +10.9% YTD 9/30/21 relative to 2019), improving FSR store level margins and franchisor incentives (63% of chains currently offer some form of development incentive) are helping to partially off-set some of these new construction headwinds which are hopefully transitory.
  • All-the-same, sky rocketing COGs & labor costs are driving sharply lower new build ROI which, in turn, is driving a move towards smaller footprint stores optimized for digital & off-premise.

  • Construction cost increases are driven by higher material prices (especially lumber, asphalt & fabricated metals). Notably, construction labor costs have not increased significantly although GCs are challenged to find/schedule work crews.
  • In any case, supply chain disruptions (longer lead times of 12 to 24 weeks for walk-in refrigerators & freezers, POS equipment, HVAC) and a longer permit approval process are significantly increasing the time it takes to complete a project.

  • At least 12 (21%) of the $1B+ Chains introduced new prototypes or significant building design updates during the last year, including: smaller building formats (fewer indoor seats); increased drive-thru/pick-up access; digital/tech enhancements; and more efficient kitchen equipment/layouts which should help improve store level efficiency while reducing construction costs going forward.

  • Notably, Taco Bell’s new prototype works equally well for humans and aliens in a hurry…

Signup
NoBullEconomics
Restaurant Research

Email Sign-up

15 Second Posts

Powell Faults an Overheated Labor Market for the Need to Hike Rates Again

Despite growing evidence of systematic bank risks associated with the Fed’s aggressive rate hikes over the last year, Powell hikes another 25 bps anyhow, citing labor pressure as the culprit. However, in the real world, labor conditions are already improving.

Fixed-Income Issuance Says a Lot About Economy

Total U.S. fixed income (FI) issuance declined -34% y/y to $8.8 trillion during 2022 as interest rates ramped up.

Bank Deposits Growing Much Faster than Business Loan Demand

Banks have been parking excess deposits in various forms of government debt that are subject to interest rate risk & in some cases, risky crypto bets. This is causing systematic risk.

Nerdwallet Survey Shows an Indebted & Very Stressed Consumer

Consumers are combating the higher price of living & higher interest rates by driving less, buying store brands & taking on more debt.

The United States of America is Worth Saving

Americans need to be reminded about our heritage as the single most productive nation as measured by GDP/person with a unique capability to bless the entire world if we can simply get back to business.

Should Private Banks Go Extinct?

Since the 2008 Great Recession, 134 banks with assets of $1.25 Trillion have been closed by regulators. At the same time, the Fed’s ballooning balance sheet now amounts to nearly 50% of total domestic bank deposits.

What Happened to Silicon Valley Bank?

Don’t assume that SVB’s difficulties are symbolic of the entire banking industry.

What Does the End of the Petrodollar Mean?

The Saudi minister of finance announced that the Kingdom was ending the petrodollar. “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal”. Yikes!

Senator Kennedy Schools Country on Economics 101

We have a choice of how to tame inflation, cut government spending, or throw people out of work.

Inflation is Marginalizing Purchasing Power from the Lower-Income Demo

As households with annual incomes >$70k drive 62% of total food-away-from-home sales, it is more important than ever to focus on this demo especially as spending from the lower-income demo slows.

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company