Impact of Inflation and Consumer Behavior on Restaurant Sales

Pricing Strategies Amidst Inflation

McDonald's and Chipotle are implementing selective price increases to manage inflationary costs, while Darden Restaurants leverages its scale to price below inflation. Starbucks also uses its scale for better pricing. Promotional activities are becoming more prominent as inflation impacts pricing strategies.

"We are working to fix that with pace. Over the last several years, our system has sustained significant inflationary cost increases ranging from 20% to 40% depending on the market. As we absorb these cost increases in partnership with our franchisees, we look for ways to protect restaurant profitability via productivity efforts and selective price increases." --- (MCD, earning call, 2024/Q2)

"Our competitive advantages give our brands an edge. Leveraging our scale creates cost advantages, which allows us to drive value for our guests, such as our ability to price below inflation over the long term and invest in our team members. Our extensive data provides insights to help our brands better understand their guests and effectively communicate with them." --- (DRI, M&A Announcement, 2024/07/18)

"And transactions are accelerating, not decelerating. That's a great environment when you use inflation to take a modest increase our price increases have gone well, but we would not want to take that for granted." --- (CMG, earning call, 2024/Q2)

"And while we're focused on quality, we leverage our scale to be able to get better pricing." --- (SBUX, conference, 2024/06/05)

"Obviously, you've got some good guys with respect to inflation coming off, but I think pricing is also rolling off a little bit, and now it seems like promotional activity is going to be ramping." --- (MCD, earning call, 2024/Q2)

Supply Chain Challenges and Their Impact

Supply chain interruptions and price increases adversely affect restaurant performance, impacting results for companies like McDonald's and their franchisees. Beyond cost, supply chain challenges encompass broader issues, including food safety and operational efficiency, as highlighted by Darden and Chipotle. Effective supply chain management is crucial for maintaining growth and customer satisfaction.

"Supply chain interruptions and related price increases have in the past and may in the future adversely affect us as well as our suppliers and franchisees, whose performance may have a significant impact on our results." --- (MCD, sec filing, 2024/Q1)

"unknown: Well, let me be clear that supply chain is more than just cost of sales." --- (DRI, event transcript, 2024/07/18)

"Making the brand visible, relevant, and loved to improve overall guest engagement, amplifying technology and innovation to drive growth and productivity in our restaurants, support centers, and in our supply chain." --- (CMG, earning call, 2024/Q1)

"Food safety concerns may have an adverse effect on our business. Our ability to increase sales and profits depends on our System’s ability to meet expectations for safe food and on our ability to manage the potential impact on McDonald’s of food-borne illnesses and food or product safety issues that may arise in the future, including in the supply chain, restaurants or delivery." --- (MCD, sec filing, 2024/Q1)

"with a splash of pineapple, fresh lime, and hand chopped cilantro. Similar to Carne Asada, when we bring back a past favorite, we are able to improve the entire experience as we leverage our know-how across culinary, supply chain, marketing, and operations to make it more delicious with seamless execution." --- (CMG, earning call, 2024/Q1)

Current Trends in Restaurant Sales

Comparable restaurant sales have shown significant increases, with Chipotle reporting a 7.0% rise in Q1 and 11.1% in Q2 2024. Darden Restaurants saw a 3.3% increase in average check despite a decline in guest counts. McDonald's reported a 3% overall increase in franchised sales, while Yum! Brands experienced a decline in same-store sales.

"Sales Trends . Comparable restaurant sales increased 7.0% for the three months ended March 31, 2024." --- (CMG, sec filing, 2024/Q1)

"The increase in U.S. same-restaurant sales in fiscal 2024 resulted from a 3.3 percent increase in average check, partially offset by a 1.7 percent decrease in same-restaurant guest counts." --- (DRI, sec filing, 2024/Q4)

"The quarterly increase in Company restaurant margin percentage was driven by the impact of closing units with low restaurant margin percentages, partially offset by a Company same-store sales decline." --- (YUM, sec filing, 2024/Q1)

"FRANCHISED SALES Dollars in millions Quarters Ended March 31, 2024 2023 Inc/ (Dec) Inc/ (Dec) Excluding Currency Translation U.S. $ 12,086 $ 11,742 3 % 3 % International Operated Markets 9,166 $ 8,669 6 4 International Developmental Licensed Markets 7,565 $ 7,640 (1) 3 Total $ 28,816 $ 28,051 3 % 3 % Ownership type Conventional franchised $ 21,165 $ 20,346 4 % 5 % Developmental licensed 4,611 $ 4,720 (2) (2) Foreign affiliated 3,040 $ 2,985 2 2 Total $ 28,816 $ 28,051 3 % 3 % Restaurant Margins Franchised restaurant margins are measured as revenues from franchised restaurants less franchised restaurant occupancy costs." --- (MCD, sec filing, 2024/Q1)

"Sales Trends . Comparable restaurant sales increased 11.1% for the three months ended June 30, 2024." --- (CMG, sec filing, 2024/Q2)

Technological Advancements in the Restaurant Industry

Restaurant industry leaders like McDonald's, Yum! Brands, Darden Restaurants, Chipotle, and Starbucks are heavily investing in technological advancements. These include modernizing operations, implementing kiosk ordering systems, QR codes for mobile apps, and continuous process improvements, all aimed at enhancing customer experience and operational efficiency.

"Foundation Foundational to the Strategy is keeping the customer and restaurant crew at the center of everything the Company does, along with a relentless focus on running great restaurants, empowering its people and continuing to modernize our ways of working through Accelerating the Organization." --- (MCD, sec filing, 2024/Q1)

"Talking about all of the tremendous advancements underway excites me about the future." --- (YUM, earning call, 2024/Q1)

"In fiscal 2025, we expect our annual effective tax rate to be 13 percent and we expect capital expenditures incurred to build new restaurants, remodel and maintain existing restaurants and technology initiatives to be between $550 million and $600 million." --- (DRI, sec filing, 2024/Q4)

"Expanding AccessTo simplify its ordering experience for new guests, the Kuwait restaurant in The Avenues Mall offers three ordering methods: Guests can order their craveable burritos, bowls, tacos, and salads in traditional Chipotle fashion by progressing through the front makeline and ordering ingredient by ingredient.The Kuwait restaurant features a kiosk ordering system that executes pick-up orders and enables menu exploration for first time guests.Tables at the restaurant feature QR codes that drive guests to download the Alshaya Chipotle mobile app for pick-up orders." --- (CMG, press release, 2024/04/22)

"So we're encouraged by the progress so far, but we're not nearly done. You're making a lot of process improvements and that's to come, at the same time also bringing in new product innovation into the business." --- (SBUX, conference, 2024/06/05)

Shifts in the Competitive Landscape

The competitive landscape in the restaurant industry is shifting due to increased competition, market consolidation, and changing consumer behavior. McDonald's highlights that the environment remains highly competitive, with consumer spending becoming more discretionary, impacting restaurant sales and competitive dynamics.

"We expect our environment to continue to be highly competitive, and our results in any particular reporting period may be impacted by a contracting IEO segment or by new or continuing actions, product offerings, technologies or consolidation of our competitors and third-party partners, which may have a short- or long-term impact on our results." --- (MCD, sec filing, 2024/Q1)

"The gap is about 3% right now or a 300 basis point gap between the two. So you are seeing consumers being much more discretionary as they treat restaurants." --- (MCD, earning call, 2024/Q2)