Unit Level Dashboard
The premium of grocery store food price CPI inflation over restaurant menu price CPI inflation continues to narrow and fell to its lowest level since February 2022 at 1.8%. Increased internal competition in the grocery store sector is a contributing factor, and it is notable that net unit development for grocery stores during the first 9 months of 2022 was nearly 3x restaurant development. As lower inflation (relative to grocery stores) has provided an important tailwind for restaurant industry sales since 2022 (as it provides consumers with a greater reason to eat-out relative to home cooking), it is important to monitor this gap going forward.
Unit-Level Margin Outlook
Darden provided very useful insight into the industry’s margin outlook during its recent fiscal 3Q:23 earnings release. Management reported that its restaurant EBITDA margin has fully recovered to its pre-covid level as an improvement in labor, other operating costs & lower marketing expenses more than off-set a sharp increase in food & beverage costs.
Darden’s Fiscal 2023 Outlook
Darden’s fiscal 2023 outlook: same restaurant sales growth of 6.5% to 7%; commodity inflation of +9.5% to +10% (see below); total inflation of +7% to +7.5%; and annual menu price increases of +6% to +6.5%.
Notably, government data paints a much more subdued cost outlook.