Casual Dining Margins - Another Leg Down

The combination of a consumption recession and rising commodity costs is producing one of the toughest business environments in decades for the restaurant industry. Unfortunately, there appears to be another leg down before things get better. Consumers will continue to keep a tight grip on their wallets, as restaurant companies use price to keep margins from collapsing. With inflationary pressures so severe, margin declines are inevitable. Another factor that complicates the process is the increased discounting many companies are using to drive incremental traffic.
  • The casual dining industry saw its margins stabilize in the first quarter of 2008 after a severe decline in the second half of 2007. While it will be another month before we get a glimpse into the second quarters for most of the companies, the recent data flow on food prices, discounting and the increase in the minimum wage suggest it could be a long summer for many casual dining companies. Several companies are starting to report EBIT margins anywhere from 0-6%.