Net income margins are definitely decreasing. High-end hasn't had trouble raising prices and consumers accepting them in my area, but I would wager the rest of the U.S. is in a different scenario. With consumers hurting a bit, and having labor costs rising, anyone not currently making 10% will probably get squeezed out.
Although, I know quick service places are just running the skeleton crew they can't get. This means record bottom line for some. Hard to say if consumers will change preferences in a huge way. I'm well aware that fast food isn't fast anymore. I'll order ahead online personally, but maybe I do go less now that I know the headache of waiting. (In a broad stroke, a competitive industry whose competitive advantage tends to be good service suddenly can't provide that... Maybe it isn't good for them after all.)
On the other side of this, companies may look for automation tech instead of shutting down due to lack of employees. AI to take orders, increased automation in fast food and quick service. I'd be more interested in investing on that side of the market. It happened to unskilled factory labor. I think we'll see it in unskilled food service, especially when they're expensive and unskilled. The tech is there, and as long as they can afford the financing it will be cheaper in the long run for them. Japan has done this, although they did it probably primarily for cultural differences. I may try to bring some of their tech over myself.
I'm still bullish on specialized and thematic concepts. I own shares in a poke company. I've also been looking at RAVE it seems they are turning around, but I'm not sure if the risk reward is good enough.
For some numbers at a high end concept in South Florida, net income was ~26% in 2020 and 2021 now that we have staff and spent on capex we're around 14%. We'll probably level out to 18%, we don't pay for the space, but we raised prices almost 30% across the board on food 10% on booze and nobody blinked.
Solid point regarding automation in fast food I feel. I wonder if there are any public companies providing the software and/or hardware for this. I know TOST but not any others.
The automation thing is tricky. Not a matter of the tech, but the customer feeling like they have to work. It seems like McDonald’s has had some success with kiosks, but I know Hardee’s tried and failed pretty miserably with that several years back.
“we raised prices almost 30% across the board on food 10% on booze and nobody blinked.”
I mean, that story just gets told about the consumer over and over again in many different industries. Mostly the same in the grocery space too, where the food manufacturers are taking double digit pricing.
It’s got to change at some point right? If you can nail the timing on that there are going to be some *very* profitable trades around earnings.
Another instance of declining living standards? And/or a foreshadowing of ongoing bifurcation in the restaurant (and other service) industry(ies) between affordable low-service and luxury high-service?
I don't know that I'd call it "declining living standards". If you own five cars and sell one because it's just too many, I don't think you'd say your living standards declined. You'd say you're a little less gluttonous than you used to be :)
Definitely some bifurcation coming, like pretty much everything else in the U.S. as currently constructed. I think more broadly though, if you believe that service labor supply is structurally undersupplied, then to source that supply your model needs to be really worthwhile.
That's where the retail parallel comes in, I think. What's the company's reason for existing at all? If consumers can live without you, at some point they're probably going to.
Net income margins are definitely decreasing. High-end hasn't had trouble raising prices and consumers accepting them in my area, but I would wager the rest of the U.S. is in a different scenario. With consumers hurting a bit, and having labor costs rising, anyone not currently making 10% will probably get squeezed out.
Although, I know quick service places are just running the skeleton crew they can't get. This means record bottom line for some. Hard to say if consumers will change preferences in a huge way. I'm well aware that fast food isn't fast anymore. I'll order ahead online personally, but maybe I do go less now that I know the headache of waiting. (In a broad stroke, a competitive industry whose competitive advantage tends to be good service suddenly can't provide that... Maybe it isn't good for them after all.)
On the other side of this, companies may look for automation tech instead of shutting down due to lack of employees. AI to take orders, increased automation in fast food and quick service. I'd be more interested in investing on that side of the market. It happened to unskilled factory labor. I think we'll see it in unskilled food service, especially when they're expensive and unskilled. The tech is there, and as long as they can afford the financing it will be cheaper in the long run for them. Japan has done this, although they did it probably primarily for cultural differences. I may try to bring some of their tech over myself.
I'm still bullish on specialized and thematic concepts. I own shares in a poke company. I've also been looking at RAVE it seems they are turning around, but I'm not sure if the risk reward is good enough.
For some numbers at a high end concept in South Florida, net income was ~26% in 2020 and 2021 now that we have staff and spent on capex we're around 14%. We'll probably level out to 18%, we don't pay for the space, but we raised prices almost 30% across the board on food 10% on booze and nobody blinked.
Solid point regarding automation in fast food I feel. I wonder if there are any public companies providing the software and/or hardware for this. I know TOST but not any others.
Great comment thanks.
The automation thing is tricky. Not a matter of the tech, but the customer feeling like they have to work. It seems like McDonald’s has had some success with kiosks, but I know Hardee’s tried and failed pretty miserably with that several years back.
“we raised prices almost 30% across the board on food 10% on booze and nobody blinked.”
I mean, that story just gets told about the consumer over and over again in many different industries. Mostly the same in the grocery space too, where the food manufacturers are taking double digit pricing.
It’s got to change at some point right? If you can nail the timing on that there are going to be some *very* profitable trades around earnings.
Another instance of declining living standards? And/or a foreshadowing of ongoing bifurcation in the restaurant (and other service) industry(ies) between affordable low-service and luxury high-service?
I don't know that I'd call it "declining living standards". If you own five cars and sell one because it's just too many, I don't think you'd say your living standards declined. You'd say you're a little less gluttonous than you used to be :)
Definitely some bifurcation coming, like pretty much everything else in the U.S. as currently constructed. I think more broadly though, if you believe that service labor supply is structurally undersupplied, then to source that supply your model needs to be really worthwhile.
That's where the retail parallel comes in, I think. What's the company's reason for existing at all? If consumers can live without you, at some point they're probably going to.