Further pressure on restaurants’ margins seen as planned price hikes not enough to offset higher input costs
95% of operators that responded to a new Jarden/QSR Media survey are planning price increases over the course of 2022.
Significant cost pressures on restaurant operators compounded with price hikes—either planned or already implemented—will not be enough to offset higher costs, suggesting a downward pressure on profit margins.
According to a collaborative survey from Jarden and QSR Media of 20 operators from the QSR industry, an expected 4.1% year-on-year lift in sales will be enough to offset an ~8% year-on-year increase in weighted average cost inflation.
A c10% year-on-year increase in cost of goods sold (COGS) is seen by respondents as a key driver of inflation, whilst wage (+3%) and rent (+2%) inflation remain more modest.
95% of operators are planning price increases over the course of 2022, with a weighted average expected increase of 5% to offset cost pressures. If achieved, Jarden says it would be the highest QSR food inflation since 2009, although the U.S. is currently running at ~8% year-on-year.
As operators’ planned price hikes remain below cost inflation, Jarden estimates the sector is likely to see >120bp of EBITDA margin contraction this year.
“With QSR food inflation currently running at ~2% y/y, these increases would represent the largest rise since 2009, and is yet another indicator pointing towards broader and higher inflation in 2022. We expect larger listed players (such as DMP [Domino’s Pizza Enterprises] and CKF [Collins Foods]) will be best positioned to mitigate pressures and forecast DMP ANZ sales to grow c8% y/y in FY22,” the research report, prepared by Jarden Australia chief economist Carlos Cacho, read.
Jarden also believes operators’ expectations for 4% market sales growth in an environment of ~5% inflation are “likely too low,” suggesting that respondents are cautious about their outlook on the market.
Inflation aside, most operators are also expecting supply chain challenges and labour shortages to remain.
“This is forcing many of them to change how they do business, including changing products/menus and reducing stores or opening hours,” the report added.
