U.S. restaurants per capita at lowest point in 25 years, MUFG says
MUFG's Nick Cole provides insights on the U.S. restaurant industry's outlook as of January 4, 2023. Despite recovery efforts, the number of restaurants remains significantly below pre-pandemic levels. There is a supply/demand imbalance favoring chains due to low restaurant per capita figures. While inflation has allowed restaurants to raise prices, there's concern over declining foot traffic, which could hinder revenue. M&A activity is low due to rising costs and margin pressures, but some improvement is expected in 2023. Labor pressures have eased, though staffing costs remain high.
- Supply/demand imbalance favors restaurant chains, likely supporting their revenues.
- Labor pressures have eased significantly, allowing most restaurants to be fully staffed.
- The number of restaurants per capita is at a low point, indicating a market contraction.
- Declining foot traffic poses a risk to sustaining revenue despite price increases.
- Margin compression due to rising costs has constrained M&A activity.
MUFG's Head of Restaurant and Hospitality Finance Nick Cole shares end-of-year outlook for restaurant industry
NEW YORK, Jan. 4, 2023 /PRNewswire/ -- The number of U.S. restaurants – including chain franchises and independent stores – has not yet rebounded to pre-pandemic levels, and is still meaningfully lower than what it was before the advent of COVID-19, according to Nick Cole, Head of Restaurant and Hospitality Finance at Mitsubishi UFJ Financial Group (NYSE: MUFG).
As 2022 comes to an end, Cole shares several viewpoints on the restaurant industry.
Restaurant supply remains low
"The number of restaurants per capita is at its lowest point in 25 years against a backdrop of population growth," Cole notes. "This supply/demand imbalance bodes well for restaurant chains even in the face of potential softening demand as we head into 2023."
Although restaurant supply is down, Cole does not expect a significant increase in new developments in the near future as construction costs and building supply availability remain prohibitive factors.
Customers have been resilient in the face of economic strain
Cole adds that the decline in restaurant capacity due to the pandemic explains why restaurants have been able to pass on higher operating costs and rising inflation to the customer in the form of price increases, even as customers themselves endure the financial pressures of inflation with greater household expenses.
"Throughout much of the year, we have seen consistently higher sales figures due to rising menu prices and stable foot traffic. However, in the last month or two there are signs that foot traffic might be slowing," Cole says. "If foot traffic continues to decline significantly, even an offset in prices might not be able to sustain revenue."
Cole explains that demand starts to slow down when the impact on household budgets makes customers reevaluate their spending patterns, and he expects this trend to continue into 2023 as customers absorb the significant hike in the cost of living.
Margin compression and low M&A
As Cole and his team anticipated in November 2021, M&A has been constrained in 2022 because of margin pressures due to rising commodity prices, workforce shortages, and the need for higher expenditures to attract labor. "The current inflationary environment and resulting margin compression has hurt business results and is therefore driving M&A activity down," Cole says. He anticipates business performance in the first half of 2023 to be better than in 2022 and potentially spur a pick-up in M&A.
Labor pressures continue to ease
Compared with this time last year, labor pressure has eased significantly within the restaurant sector, Cole says. "Most restaurants report that they are fully staffed now, however it is costing them more to do it. Ultimately, while it is still not easy to staff, pressure has been relieved across the board."
Press contact:
Meghan Carbone
D: +1 212-405-7026
M: +1 908-894-0573
Meghan.Carbone@mufgsecurities.com
About MUFG and MUFG Americas
Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the world's leading financial groups. Headquartered in Tokyo and with over 360 years of history, MUFG has a global network with approximately 2,100 locations in more than 50 countries. MUFG has nearly 160,000 employees and offers services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing. The Group aims to "be the world's most trusted financial group" through close collaboration among our operating companies and flexibly respond to all the financial needs of our customers, serving society, and fostering shared and sustainable growth for a better world. MUFG's shares trade on the Tokyo, Nagoya, and New York stock exchanges.
MUFG's Americas operations, including its offices in the U.S., Latin America, and Canada, are primarily organized under MUFG Bank, Ltd. and subsidiaries, and are focused on Global Corporate and Investment Banking, Japanese Corporate Banking, and Global Markets. MUFG is one of the largest foreign banking organizations in the Americas. For locations, banking capabilities and services, career opportunities, and more, visit www.mufgamericas.com.
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SOURCE MUFG Bank, Ltd.
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