Labor and commodity costs
Carrols Restaurant Group, a 1,000-unit Burger King operator, based in Syracuse, New York, pays 13% more in wages, premiums, and overtime to meet customer demand.
Labor costs increased by $250 basis points as a percentage of sales in the third quarter, costing $15 million more.
Commodity prices rose as well. In the third quarter, Carrols reported a 15.5 percent increase in beef costs as suppliers faced their labor challenges. The dual challenges offset some improving sales. Same-store sales at its Burger King restaurants increased by 5% in October. It went up from 2.7 percent in the third quarter.
We’re grappling with how much of the higher labor costs are transitory and whether commodity prices will follow their traditional cyclical patterns and revert to the mean.
The economic conditions caused by the pandemic and its impact on the labor force, supply chain, and consumer habits remain challenging to navigate and predict. The problems at Carrols, one of the country’s largest franchisees, highlight issues that plague much of the industry, even as sales recover.
For one reason or another, labor and commodity costs routinely rise. However, it is uncommon for both to occur at the same time. Food and labor are the two most expensive components of any restaurant, and inflation pushes prices to all-time highs.
In a volatile week, oil prices fall due to a stronger dollar
Oil prices fell on Friday. It wiped out gains from the previous session. Meantime the dollar rose on expectations that the Federal Reserve will announce plans to raise interest rates to combat inflation.
West Texas Intermediate (WTI) crude futures in the United States fell 58 cents, or 0.7 percent, to $81.01 per barrel. It revised a 25 cent gain on Thursday.
Brent crude futures fell 65 cents, or 0.8%, to $82.22 per barrel.
The dollar may maintain its strength until the market has fully digested the expectation of a more hawkish Fed, which may not be until mid-2022. Both benchmark crude contracts were poised to end the week lower by around 0.7 percent. They followed a sharp move up and down. It was fueled by a soaring dollar and speculation on whether the Biden administration would release oil from the US Strategic Petroleum Reserve to cool prices.
The market oversupplied. Hence, he believes the more significant issue is a shift in demand dynamics as the market shifts away from a strong recovery driven by a revival in demand for goods – which has fueled energy demand – and toward recovery in demand for services. There are encouraging signs on the demand side, with air travel rapidly increasing. Still, tighter monetary and fiscal policy, as well as the impending northern hemisphere winter, will be a drag.
The OPEC cut its fourth-quarter global oil demand forecast by 330,000 barrels per day from last month’s forecast. They cited high energy prices as a drag on the recovery from COVID-19. Last week, OPEC+, agreed to stick to their plans to add 400,000 barrels per day to the market each month.