Global supply chain bottlenecks, costs in focus as restaurant chains declare profits
NEW YORK, Oct.26 (Reuters) – Investors hope to assess the impact of the global supply chain deadlock on restaurant expansion plans when McDonald’s Corp (MCD.N), Starbucks Corp (SBUX.O ) and Yum Brands Inc (YUM.N) are reporting capital expenditures in their earnings this week.
Soaring prices for kitchen equipment – along with labor, food and other commodities – are causing some U.S. restaurant chains to cut back on opening plans despite steady revenue growth. Some chains and their franchisees may delay remodeling or adding drive-thru in the face of rising costs, restaurant consultant Aaron Allen told Reuters.
Median capital spending as a percentage of earnings for publicly traded U.S. restaurant businesses fell to 3% in early May 2021 and remained at that level in October, compared to a ratio of 5% from 2017 to 2019, Allen said.
Chipotle Mexican Grill Inc (CMG.N) opened 41 new restaurants in the third quarter. CEO Brian Niccol told Reuters that this aligns with plans to build 200 new locations in 2021, mostly in the United States, but without delays and without higher costs for construction, labor and equipment, he might have been able to open “well beyond”.
Domino’s Pizza Inc (DPZ.N) CEO Richard Allison said on an Oct. 14 call for results that problems getting kitchen equipment was a key factor in a number of openings for stores delayed in the third quarter.
Globally, all sectors are expected to increase capital spending by 8.1% in 2021, according to a report by the global economist at Morgan Stanley. Restaurants pay at least 10% more for some new equipment and wait months for it to arrive.
SUPPLEMENTS AND LONG WAITINGS
Italian equipment maker Ali Group has raised prices 10 to 20 percent on some metal shelves and refrigerators over the past 18 months, said Rob August, senior vice president of manufacturer Ali Group North America.
When Atosa USA’s next price increases take effect on November 1, one of its two-door refrigerators will cost $ 3,249, 37% more than in January, according to a dealer. Atosa is a division of the Chinese company Yindu Kitchen Equipment Co Ltd (603277.SS).
Ali Group’s ice makers are now hard to find, the dealer said, and the wait for some Pitco fryers from Middleby Corp (MIDD.O) has been up to seven months, franchisees said.
“We are experiencing unprecedented cost increases in materials, freight and labor,” a Middleby spokesperson said, noting that while wait times are longer than usual, seven months is not the norm.
A McDonald’s franchisee told Reuters that some franchisees waited 23 weeks for a new Frymaster Fryer, made by Welbilt Inc.
Atosa and Welbilt did not respond to requests for comment.
At the Portillo’s Restaurant Group Inc sandwich chain, which went public on Thursday, “we’re forecasting about 10-15% more for new restaurant construction than literally six months ago,” CEO Michael Osanloo said.
John Stack, president of equipment retailer A City Discount outside of Atlanta, said most of the new and remodeled restaurants his company has designed have delayed their openings because they cannot get the equipment on time.
Reporting by Hilary Russ; Editing by Howard Goller
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