Corporate Profiles - 2022 - 48

INDUSTRY REVIEW: FOODSERVICE
Foodservice
R
Operators are investing to adapt to challenging environment
estaurant industry sales continue to recover from the effects of the ongoing
pandemic while inflation and a tight labor market have hindered
profitability. Operators are making significant investments to adapt.
Burger King, a business of Restaurant Brands International, for example,
is embarking on a two-year, $400 million plan to " reclaim the flame. " Of the
$400 million, $280 million will be put toward modernizing restaurant technology
to reduce labor and operating costs, and improve how the chain engages
with consumers through its digital app.
Starbucks Corp. is on a similar path to reinvent its business to meet the
changing needs of consumers and fuel growth. The company plans to invest
$450 million in its existing US store base in fiscal 2023 with continued investments
in fiscal years 2024 and 2025. Executives noted tremendous opportunity
to expand and diversify store formats across cafes, pickup, delivery-only and
drive-thru-only locations. Starbucks also is in the process of reinventing its instore
operations to meet growing customer demand
for customized hot and cold beverages as well as
warm foods. Today, two in five Starbucks customers
are adding food to their orders, said Brady Brewer,
chief marketing officer. A key focus is menu options
that may be eaten with one hand.
The National Restaurant Association recently
likened running a restaurant business today to
playing the game Jenga, " with operators carefully
pulling from the foundation of their operating
plans to prop up new supports in a changing
economy. " Adding to the pressure are across-theboard
rising costs.
About 95% of a restaurant's sales go to food,
labor and operating costs, all of which are increasing
each month, according to the NRA. In a survey
YEAR-OVER-YEAR INDEX
2019 = 100
110
100
90
80
70
60
50
40
Jan.
2020
March
Source: Tindex Technomic Index
May
July
Sept.
Nov.
Jan.
2021
March
May
July
Sept.
Nov.
Jan.
2022
March
May
July
released in mid-August, the group said wholesale food prices increased 16.3%
in the last 12 months while menu prices rose 7.6%.
In the survey, 88% of operators said their total food and beverage costs are
higher than in 2019, and across the board, many other costs are up. Specifically,
65% of operators said their occupancy costs are up from 2019 and 80%
said their utility costs are up from 2019.
DECLINING TRAFFIC
The spending gap between higher- and lower-income households is becom88%
of
operators said
their total food and
beverage costs are
higher than in 2019.
65%
of operators said their
occupancy costs are
higher than in 2019.
80%
of operators said their
utility costs are higher
than in 2019.
foodservice industry sales
ing more pronounced as food inflation has reached a 40-year-high. Lowerincome
households are adjusting to stretch their food dollars, cutting back on
restaurant visits and modifying their at-home eating behaviors to save money.
Households earning less than $75,000 a year are eating 89% of their meals
and snacks at home, according to The NPD Group.
Per capita restaurant visits decreased across
all income groups during the first two years of the
pandemic, but in the quarter ended in June this
year, the drop was most pronounced in income
groups under $75,000. Households earning less
than $45,000 with children cut back five visits
per person in the quarter, driving an overall 2%
decrease in total restaurant visits versus a year
ago. The impact spans all foodservice segments,
with companies including Jack in the Box and Dine
Brands Global reporting shifts in traffic across different
income groups in recent earnings calls.
Dine Brands, the parent company of IHOP and
Applebee's, saw a decrease in visits from guests
making $50,000 or less in the most recent quarter
48 \ November 2022
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Corporate Profiles - 2022

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