On the Margin
Restaurants had a profitable quarter

Restaurants had a profitable quarter

This post is part of the On the Margin blog.

Restaurants enjoyed a business owner’s dream in the second quarter: Higher sales and lower costs.

According to the latest benchmarking update from the consulting firm BDO, chain restaurant same-store sales rose 3.9 percent on average in the second quarter, based on data from publicly traded concepts.

At the same time, costs fell. On average, prime costs fell 0.4 percent in the period, to 59.5 percent of sales, from 59.9 percent a year ago.

Labor costs as a percent of sales fell despite concerns expressed by several executives about rising minimum wages and higher overall labor costs due to competition for workers. On average, labor costs fell 0.2 percent, to 29.9 percent of sales. They fell industrywide, though they increased 0.6 percent for pizza concepts — in large part because rising sales at Domino’s Pizza led that company to increase bonus payments and overtime.

Still, BDO suggested that higher industry sales in the period led to lower labor costs as a percent of sales. Better management also contributed to the decrease.

But the biggest decline came from food costs. Commodity costs declined for everything but — not surprisingly — beef.

Pork costs fell 16.4 percent in the quarter, and cheese costs fell 11.7 percent, according to federal data compiled by BDO. Wheat costs fell 6.1 percent, and poultry costs fell 2.2 percent. The entire commodity basket was down 2 percent in the period. Beef was the big exception, rising 3.4 percent.

Total prime costs were lowest for pizza chains, at 55 percent of revenues for labor and food costs. They were highest for casual-dining concepts, at 60.6 percent.

The numbers aren’t a full reflection of the industry, in that they only measure figures from publicly traded chains, which are either large or which represent fast-growing concepts. Still, they provide a picture of how the industry is performing at the moment. And that performance is improving.

On the sales front, pizza chains not surprisingly led among all sectors, averaging same-store sales growth of 7.3 percent. But all sectors performed well, including casual dining at 2.7 percent.

Quick-service restaurants’ same-store sales averaged 4.8 percent growth. Fast-casual concepts grew 6 percent.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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