Restaurant Margins Hammered

Implications: - Commodity prices are rising and distribution costs are up. - Consumers are not willing to accept menu price increases.

Analysis:  The restaurant industry finds itself in a difficult spot, one that many operators have never before experienced. Operators are squeezed between rising costs and slackening demand due to inflationary pressures. Consumers are having to choose between vital expenditures and those that can be delayed or forgone. Caught between rising prices and reduced traffic in restaurants, some chains had to resort to old fashioned discounting tactics (coupons) in order to attract diners. Discounting works but it also accelerates the margin pressures already being experienced so in some cases it merely delays the inevitable closure or bankruptcy. With no end for this situation in sight, the only success formula for restaurant companies is to be very well capitalized and be an outstanding operator.