Study: Two-Thirds of Restaurants Affected by Rising Gas Prices

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Diving Brief:

  • Rising gas prices have negatively impacted about 68% of small business recovery efforts, adding to pressures from the pandemic, inflation and other challenges, according to new data from Alignable.
  • Sixty-six percent of restaurateurs say they are struggling with high gas prices. For some, these price increases have affected sales on delivery. The disruption comes as 83% of restaurateurs said they were still recovering at the start of March.
  • Gasoline prices have jumped almost 50% year over year and are at record highs in several markets. Rising gas prices are accompanied by an inflation rate that is at its highest level in 40 years and is expected to rise through April, according to CBS News.

Overview of the dive:

Some restaurants may be more affected than others as consumers feel the pinch at the pump. A new study from the AAA finds that higher gas prices may deter consumers from driving as much, which could reduce their frequency at drive-thru restaurants. This comes as several restaurant chains focus on drive-thru innovations to better capture offsite spending.

Restaurants that rely heavily on delivery, like Papa John’s, could also be hit, as some delivery providers pass fuel surcharges on to consumers. Gastronomy could also be negatively affected, as consumers shift spending to offset high fuel costs.

Consumers likely have a price threshold, according to Reuters/Ipsos. If gas prices hit $6 a gallon, a majority of Americans would spend less at restaurants to offset what they would pay at the pump.

Inflationary pressures amplified in December and January during the omicron COVID-19 outbreak, which affected much of the industry in the last quarter. During Starbucks’ first-quarter phone call in early February, for example, outgoing CEO Kevin Johnson estimated that inflationary impacts on the margin would exceed 200 basis points this year. Chief Financial Officer Rachel Ruggeri added that inflationary pressures will remain higher this year compared to 2021.

During Papa John’s fourth quarter earnings call in February, Chief Financial Officer Ann Gugino also predicted that inflation would continue through fiscal 2022 and put pressure on margins. Notably, these earnings calls predated the current gas spikes, which followed the Russian invasion of Ukraine on Feb. 24.

As operators manage higher costs and potential traffic drops, they may need to raise prices even more than they have in recent months. In fact, restaurant menu prices recently saw their largest year-over-year increase since late 1981, as operators passed on some of their inflationary pressures to consumers. Such tactics could push consumers to limit their food spending in restaurants.

It’s the kind of environment that could redefine value – pushing operators to create experiences that consumers are willing to drive and spend more on.

Jack in the Box CEO Darin Harris alluded to restaurants’ attempts to calibrate price and value during his company’s first quarter call in late February.

“I think that’s the part we’re all trying to figure out, is that worth now?” he said. “Is it $5, is it $6, is it $7, aAnd how do we continue to improve our pricing power?”

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