On the Margin
Sales go up, and food costs fall

Sales go up, and food costs fall

This post is part of the On the Margin blog.

It’s safe to say that restaurants had a good 2015. Same-store sales increased, and costs decreased.

That’s the conclusion of the latest benchmarking update from the consulting firm BDO. Analyzing results from publicly traded restaurant chains, the firm found that prime costs — food and labor — decreased 0.5 percent, to 59.5 percent of sales.

Food costs declined last year after years of increases. On average, restaurants’ cost of sales decreased by 0.7 percent, to 29.4 percent of sales, from 30.1 percent of sales in 2014.

The largest decline came among pizza chains, which saw food costs fall to 25.8 percent of sales from 27.7 percent, thanks largely to declining prices for cheese, according to BDO. But all sectors, including quick-service chains, fast-casual dining concepts, all experienced declines in food costs last year.

Cheese prices fell 13.5 percent in 2015, after increasing 12.2 percent the year before. Pork prices fell 23.4 percent, and wheat prices fell 10 percent, helping the entire basket of commodities to fall 3.4 percent for the full year — and that’s with beef prices rising 3.4 percent.

Meanwhile, same-store sales were strong across the board, increasing 3 percent on average for the full year.

Pizza chains, thanks largely to strong same-store sales from Domino’s Pizza Inc. and Papa Johns International Inc., led the way with 6.4-percent same-store sales growth on average.

Source: BDO Restaurant Benchmarking Update

Higher same-store sales helped chains offset rising labor costs, at least somewhat. Labor costs on average increased 0.1 percent, to 30.1 percent of sales. Pizza chains’ same-store sales increased 0.7 percent, to 29.3 percent, though that’s largely due to higher labor costs at Domino’s.

Quick-service concepts’ labor costs decreased 0.1 percent, to 28.5 percent, while fast-casual chains’ labor costs increased 0.2 percent, to 27.1 percent. Casual-dining companies’ labor costs were flat, at 32.9 percent.

Source: BDO Restaurant Benchmarking Update

Labor costs should continue to increase in the coming years as more states increase their minimum wages — both New York and California recently passed increases in their wages to $15 an hour. Several other states have increased their minimums, too, while competition for labor is expected to drive up overall labor costs.

And labor costs in the coming years could be pushed even higher as the federal government is expected to increase the threshold for employees to qualify as exempt from overtime pay.

For now, however, labor costs remain in check, food costs are going down and sales are going up.

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

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