Food Costs for Restaurants Went Down in 2016, but Labor Costs Jumped Higher
The rise in labor costs more than offset restaurants’ savings from cheaper commodities, according to BDO analysis.
With low unemployment, restaurants face more intense competition for employees, with some offering up to $14 an hour.
An analysis by the consulting firm BDO found food costs went down for publicly traded restaurants in 2016, but labor costs jumped in the same year, Nation’s Restaurant News reports.
As commodity prices tumbled after reaching record highs, restaurants saw their cost of sales fall 0.6% to 29.1% of revenues last year, BDO found. But labor as a percentage of sales increased 0.8% to 30.5% in 2016, more than offsetting the savings on commodities and driving up restaurants’ overall prime costs by 0.2%.
Dustin Minton, a partner with BDO, told NRN that restaurant owners have gotten better at managing their food costs because they’ve invested in useful technologies toward that end. But they’re also dealing with intense competition for employees, overtime requirements, health care costs and increases in the minimum wage in some states and cities. “Unemployment is so low, competition is fierce for people,” Minton told NRN.
Meanwhile, fast-casual chains saw the highest increase in costs—with their labor costs jumping 1.3% to 28.4% of sales—even as their same-store sales fell by 1.4% in 2016. But pizza chains, led by what NRN describes as “otherworldly performance” by Domino’s, are still going strong. Their average same-store sales increased 4.6% in 2016.