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Report: Commodity inflation pressures industry to raise prices

Report: Commodity inflation pressures industry to raise prices

Smaller chains outperform their larger competitors, according to latest NRN-MillerPulse report

Smaller restaurant chains have outperformed their larger competitors in seven of the past eight months, according to the NRN-MillerPulse report released Monday.

In May, restaurant chains overall saw same-store sales rise 2.2 percent, an improvement from the 1.8-percent increase in April.

Guest traffic remained negative for the seventh consecutive month, with a decline in May of 0.6 percent. Still, May’s results showed improvement over the traffic decline of 1.5 percent in April.

In general, however, larger quick-service and casual-dining chains dragged down the industry’s overall performance, while smaller chains fared better, said Larry Miller, founder and chief executive of the MillerPulse report.

Regardless of chain size, all operators tracked in the monthly index find themselves trapped between the “rock” of rising commodity prices and weak consumer traffic, and the “hard place” of whether to raise menu prices to protect margins, Miller said.

“Pricing decisions of the past are lifting check averages now, and propping up sales and margins,” wrote Miller in the report. “But check growth should moderate in [the] coming months.”

Restaurant chains surveyed for the report predict that future menu price increases will settle around 1.6 percent over the next six months. In February, chains predicted increases as high as 2.1 percent.

“The downside is future restaurant margins could get smashed, but this would be preferable to seeing traffic roll over, in our opinion,” Miller said.

Starting in May, the MillerPulse report had a change in format, combining the quick-service and fast-casual categories into QSR.

In May, QSR chains recorded a same-store sales increase of 3 percent, though traffic fell 0.2 percent.

Same-store sales were flat for casual-dining chains during the month, and guest traffic declined 2.4 percent.

Fine dining, once again, was the only segment to show traffic growth, with an increase of 3.8 percent. The segment’s same-store sales rose 6.2 percent for the month.

Margins for the industry overall improved in May, to 15.6 percent, a 30-basis-point improvement over the prior month, though that trend was largely driven by the full-service segment.

Operators said they expect commodity prices to continue to rise.

Chains said they expect commodity inflation of 2.8 percent over the next six months, an increase from their projection of 2.6 percent in April. Those in QSR expect even worse inflation, reaching 2.9 percent over the next six months, compared with full-service operators, who projected a 2.6-percent hike in commodities.

Not surprisingly, QSR operators also expected to increase menu prices more in the next six months compared with full service.

Quick-service chains expect to raise menu prices 1.9 percent, compared with the 1.3 percent in menu price increases expected by full-service operators.

Restaurant chains and operators interested in participating in the MillerPulse survey for additional results and insight can register at the MillerPulse website.

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout

TAGS: Finance News
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