Impending Earnings Report By Restaurant Chains To Have In Focus Global Supply Chain Logjams And Costs

When McDonald’s Corp, Starbucks Corp, and Yum Brands Inc announce their capital expenditures in their earnings reports this week, investors want to get a sense of the impact of the global supply-chain snarl on the development and expansion plans of restaurants.

Despite continuous solid revenue growth, some restaurant companies of the United States have been forced to scale down their opening plans because of skyrocketing prices for kitchen equipment — as well as labor, food, and other commodities.

According to restaurant consultant Aaron Allen, in the face of escalating costs, some chains and franchisees may postpone upgrading or installing drive-thrus.

According to Allen, there was a 3 per cent drop in median capital expenditures as a percentage of revenue at publicly traded US restaurant companies in early May 2021 and were stagnant at that level till October, compared to a ratio of 5 per cent from 2017 to 2019.

In the third quarter, 41 new locations were launched by Chipotle Mexican Grill Inc. That is much lower than the company’s plans to launch 200 new locations in 2021 primarily in the United States but were prevented from doing so because of delays and higher construction, labor, and equipment expenses. According to CEO Brian Niccol, without the abovementioned headwinds the company might have been able to open “far beyond” than it actually did.

A major issue in Domino’s Pizza Inc getting delayed in the opening of new stores in the third quarter was the difficulties obtaining cooking equipment, said the company’s CEO Richard Allison in an earnings call on Oct. 14.

According to Morgan Stanley’s global economist, all sectors are predicted to increase capital expenditures by 8.1 per cent in 2021. For some new equipment, restaurants are spending at least 10 per cent more while also having to wait for months for it to get delivered.

Over the last 18 months, prices on some of its metal shelves and refrigerators were raised by 10-20 per cent by Ali Group, an Italian equipment manufacturer, according to Rob August, senior vice president of Ali Group North America.

One of the two-door refrigerators manufactured by Atosa USA will be worth $3,249, which would be 37 per cent compared to January prices when the company’s new raised prices come into effect from November 1, according to a dealer.

Atosa is a subsidiary of Yindu Kitchen Equipment Co Ltd of China.

Ali Group ice machines are now hard to come by, according to the dealer, while they wait for specific Pitco fryers from Middleby Corp (MIDD.O) has been as long as seven months, according to franchisees.

“We are experiencing unprecedented cost increases in material, freight, and labor,” a Middleby spokesperson said, noting that while wait times are longer than usual, seven months is not standard.

(Adapted from USNews.com)



Categories: Economy & Finance, Entrepreneurship, Regulations & Legal, Strategy, Sustainability

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