While a study of macroeconomic data provides a great backdrop for understanding the capital markets, we prefer to analyze what public companies report (both in terms of data & commentary) each quarter. We think of it as checking the macro against the real world. So, with 2Q22 results wrapped-up, we present insights into the results of the public restaurant companies which, in turn, provides great insight into the consumer. In general, the major chains lacked the pricing power to pass along inflationary input costs to their customers. Food cost inflation increases ran mid-teens to low twenties while labor costs were up high-single-digits to low-double-digits. That’s a lot of inflation & substantially higher than the CPI numbers! Notably, higher wages were inadequate to attract sufficient employees to fully staff the restaurants, resulting in lost capacity, operating hours, and revenues. Unemployment numbers notwithstanding, a low labor participation rate is pressuring the sales of a very large & important industry. Mid-single-digit to high-single-digit menu price increases helped partially offset cost inflation, but at the price of considerable traffic losses – especially among lower-income consumers who pulled back most notably during periods of peak gas prices. Further evidence of a vulnerable low-income consumer was marked by the underperformance of those chains which over-index towards this demo and this was perhaps best illustrated by pizza chain sales weakness during the quarter. This segment usually prospers by providing great value to groups who can afford to split a $13 pizza – this development is puzzling as the pizza chains were super-stars during covid, and it’s not like their customers are now going to Ruth’s Chris instead. Fortunately, many chains called peak inflation this quarter which is critical as current operating conditions are not sustainable. Finally, we would like to point out that while the Fed is busy proving its bravado by hiking interest rates, this will not help increase the supply of food or labor (something the restaurant chains need more than anything). Rather, it will more likely hurt an already ailing, over-leveraged consumer.