The Great Reboot

Global supply chain logjams, costs in focus as restaurant chains report earnings

3 minute read

A Starbucks logo hangs outside of one of the 8,000 Starbucks-owned American stores that will close around 2 p.m. local time on Tuesday as a first step in training 175,000 employees on racial tolerance in the Brooklyn borough of New York, U.S., May 29, 2018. REUTERS/Lucas Jackson

Register now for FREE unlimited access to reuters.com

NEW YORK, Oct 26 (Reuters) - Investors hope to gauge the impact of the global supply-chain logjam on restaurant expansion plans when McDonald's Corp (MCD.N), Starbucks Corp (SBUX.O) and Yum Brands Inc (YUM.N) report capital expenditures in their earnings this week.

Skyrocketing prices for kitchen equipment – as well as for labor, food and other goods – are prompting some U.S. restaurant chains to curtail opening plans despite consistently strong revenue growth. Some chains and their franchisees may put off remodeling or adding drive-thrus in the face of rising costs, restaurant consultant Aaron Allen told Reuters.

Median capital expenditures as a percentage of revenue at publicly traded U.S. restaurant companies dropped to 3% in early May 2021 and remained at that level as of October compared with a ratio of 5% from 2017 to 2019, Allen said.

Register now for FREE unlimited access to reuters.com

Chipotle Mexican Grill Inc (CMG.N) opened 41 new restaurants in the third quarter. CEO Brian Niccol told Reuters that aligns with plans to build 200 new locations in 2021, mostly in the United States, but without delays and higher costs for construction, labor and equipment, it might have been able to open "well beyond" that.

Domino's Pizza Inc (DPZ.N) CEO Richard Allison said in an earnings call on Oct. 14 that problems getting kitchen equipment were a key factor in a number of store openings delayed in the third quarter.

Globally, all sectors are expected to boost capital expenditures by 8.1% in 2021, according to a report from Morgan Stanley's global economist. Restaurants are paying at least 10% more for some new equipment and waiting months for it to arrive.

SURCHARGES AND LONG WAITS

Italy-based equipment manufacturer Ali Group raised prices by 10% to 20% on some metal shelving 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 Nov. 1, one of its two-door refrigerators will be priced at $3,249 – 37% more than in January, according to a dealer. Atosa is a division of China's Yindu Kitchen Equipment Co Ltd (603277.SS).

Ice makers from Ali Group are now hard to find, the dealer said, and the wait for certain Pitco fryers from Middleby Corp (MIDD.O) has been as long as seven months, franchisees said.

"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.

One McDonald's franchisee told Reuters that some franchisees have waited 23 weeks to get a new Frymaster Fryer, made by Welbilt Inc .

Atosa and Welbilt did not reply to requests for comment.

At sandwich chain Portillo's Restaurant Group Inc, which went public on Thursday, "we're budgeting about 10 to 15 percent more for new restaurant builds than we were literally six months ago," said CEO Michael Osanloo.

John Stack, president of A City Discount equipment dealer outside Atlanta, said most of the new and remodeled restaurants his company has designed have delayed openings because they cannot get equipment on time.

Register now for FREE unlimited access to reuters.com
Reporting by Hilary Russ; Editing by Howard Goller

Our Standards: The Thomson Reuters Trust Principles.

More from Reuters