A&W Restaurants CEO expects milder cost increase this year

The exterior of an A&W root beer restaurant is seen in Emmetsburg, Iowa
The exterior of an A&W root beer restaurant is seen in Emmetsburg, Iowa, U.S., January 16, 2020. REUTERS/Shannon Stapleton/File Photo

NEW YORK, Jan 27 (Reuters) - A&W Restaurants expects the total costs its franchisees pay for paper, burger patties, ice cream and other goods to rise much more slowly in 2023 than they did in 2022, a year of record inflation.

Profit margins at most restaurants have been squeezed by higher costs for everything from kitchen equipment to chicken wings. Major chains including McDonald's Corp (MCD.N) and Starbucks Corp (SBUX.O) are slated to begin reporting quarterly earnings next week.

Privately held A&W projects its total cost of goods will rise just 2.4% this year, versus about 20% in 2022, Chief Executive Officer Kevin Bazner told Reuters in an interview this week.

"We're cautiously optimistic that is even going perhaps slightly lower," he said. His outlook is also buoyed by fewer construction delays for new stores and equipment. Fryers now take 6 months to get, down from a year-long wait at the height of pandemic-related supply chain backlogs, for example.

Many restaurants raised menu prices multiple times last year to offset higher food, labor and energy costs.

But some of those pressures are now easing. Cheddar cheese and other dairy items have gotten cheaper, with butter prices falling 46 cents per pound to $2.49 from Dec. 10 to Jan. 7, according to U.S. Department of Agriculture data.

At A&W's Oshkosh, Wisconsin location, the price of a Coney Cheese Dog has risen to $4.19, and a large root beer float in the chain's iconic glass mug is now $4.99.

The Kentucky-based chain has more than 500 U.S. locations and about another 400 across Singapore and other Asian countries.

A&W franchisees buy ingredients through a purchasing cooperative also used by Yum Brands Inc (YUM.N), which previously owned A&W.

Reporting by Hilary Russ; Editing by David Gregorio

Our Standards: The Thomson Reuters Trust Principles.

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Hilary Russ writes about global restaurant chains including McDonald's and Starbucks. She previously covered sports betting, as well as municipal bonds, public finance and infrastructure. Hilary previously worked at Law360 covering corporate bankruptcies, white collar crime and the U.S. Supreme Court. At The Cape Cod Times and City Limits, she covered local courts, general news and social and public policy issues. She is an avid bird watcher.