Your Tab's Fattening Up at Your Favorite Casual Restaurants
One of the meatier morsels in Cheesecake Factory's (CAKE) quarterly report last week was that it was considering a larger menu price increase than its historical average of 2 percent.
"Looking forward to the second half of the year, while we're always trying to balance capturing guest traffic and offsetting cost pressures, protecting our margins is certainly a priority and we would consider taking more pricing than normal or more than what we have done historically later in the year in light of the cost headwinds, particularly labor wage rates," Cheesecake Factory CFO Doug Benn said during its earnings call.
Higher group medical claims find health insurance expenses moving higher at Cheesecake Factory, but the chain is bracing the market to see it as the new normal.
"We see other restaurant operators that look like they are willing to take a little more price than what they normally have," Benn conceded. "We believe restaurant companies including us will have to consider more pricing in this cost environment as the pace of the economy accelerates."
Restaurants Are Doing Well, Thank You
This is shaping up to be a great year for the restaurant industry. The country's improving employment rate finds more people with less time to cook meals at home as well as more of the means to eat out. The drop in gasoline prices is also putting more disposable income in folks' pockets, so they can now afford to hit eateries more often.
The National Restaurant Association sees a record $709.2 billion in industry sales this year, up 3.8 percent from 2014. There will be a total of 14 million jobs in the industry this year, up 3.2 percent from a year earlier. That's the good news. The bad news is that the association also sees costs moving higher this year. Between costs related to the rollout of the Affordable Care Act and the potential increase of minimum wages, labor costs are on the rise. Somebody has to pay for these developments, and they were just seated in a booth by the window.
Some companies didn't wait until 2015. Chipotle Mexican Grill (CMG) kicked in with its first substantial menu price increase in three years in May of last year. Its move was in response to a sharp uptick in costs.
There could be some relief on that front this year. Wholesale food prices may have climbed 25 percent over the past five years, but the association sees pork and dairy prices stabilizing in 2015.
Chili's, Ruby Tuesday See the Same Thing
Chili's parent Brinker International (EAT) saw commodity prices spike in its latest quarter, fueled by larger-than-anticipated upticks in the prices of burger meat, avocados and cheese. Even an industry laggard -- Ruby Tuesday (RT) -- finds itself having to pass on the growing costs of doing business to its consumers.
Ruby Tuesday recently updated its guidance on food inflation. It sees food costs climbing 2 percent to 2.5 percent, up from an earlier outlook that was slightly lower.
"We want to make sure that we maintain our value and propositions," Ruby Tuesday CFO Jill Golder said in its most recent earnings call. "We don't expect to price at the same level that you've probably seen some of the competitors [pricing at], but perhaps some incremental pricing in the 1 percent range."
In other words, Ruby Tuesday sees the competition jacking up their prices. It's going for a more modest uptick, but it's still an increase. So, yes, don't be surprised if your tab at the end of the meal is larger than you remembered. You're not alone. Everyone will be paying more.
Motley Fool contributor Rick Munarriz owns shares of The Cheesecake Factory. The Motley Fool recommends and owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. Hungry for some good stocks? To read about our favorite high-yielding dividend stocks for any investor, check outour free report.