labor costs - NoBullEconomics

Unit Level Dashboard – 8/22

• While 2Q comps for the $1B+ Chains increased +3.5% (+14% 3-yr. stack), RR’s consumer survey (which measures intentions to eat-out over the next month) continues to reveal a challenging 3Q sales outlook.
• Food prices continue to surge, breaking another record in July (+10.9% y/y & +14.8% 2-yr. stack).
• Recent passage of the California Fast Food Accountability & Standards Recovery Act increases QSR wages in the state by +40% to $22/hr. in 2023, aggravating labor inflation.
• Unit-level operating margins for the corporate owned stores of the publicly traded $1B+ Chain companies declined 4.5% to 16.5% during 2Q:22 vs. 2Q:21.

Unit Economics

• While AUV’s continue to benefit from the closure of underperforming stores over the last 2 years, significant 2022 sales headwinds reflect the need to pass along higher prices to consumers with less disposable income.
• The average 2021 unit-level EBITDAR margin for the $1B+ chains rebounded to just under the 2019 level as higher COGS were more than off-set by lower labor and operating costs, both of which benefitted from significant sales leverage.

RR Dashboard: Sales Look Good, but Looks Can Be Deceiving

• FSR 1Q:22 comp performance for $1B+ chains outperformed the annual average for the 3-year stack comp as the sit-down concepts continue their recovery.
• Conversely, QSR comps are slowing, mirroring recent industry commentary about how the higher income demo (FSR) has been more resilient to current economic conditions relative to the lower income demo (QSR).
• Record highs for many commodities and wages have prompted most of the public restaurant companies to raise their cost outlooks for 2022.