High Cost of Energy Squeezing Restaurants

Oil is a major ingredient in fourth-quarter restaurant earnings, particularly in casual dining. High energy costs are pinching both fast-food and casual-dining chain operators and their customers. Ruby Tuesday, Sonic Corp., P.F. Chang and others have lowered earnings estimates based on sky-rocketing natural gas prices. "Many restaurant chains are expected to post anemic year-ending numbers", declares a Chicago Tribune story on this sorry state of affairs. It goes on with the following insight:

"Several in the bar-and-grill segment, which is popular with middle-income patrons, experienced sluggish sales in the fourth quarter as consumers cut back on eating out...'Given consumer budgetary pressures from higher fuel costs, we believe the lower-income casual-dining customers are trading down to fast food,' Bear Stearns & Co. advised clients in a recent report."

 High energy costs move customers away from casual dining down and into fast-food chains, eh? For lower end casual dining, that's a double-whammy on earnings. Revenues from fewer customers go down while cooking expense from high natural gas goes up. Ouch!

What David Ogilvy, the founder of ad agency giant Ogilvy & Mather said is right. "In the best institutions, promises are kept no matter what the cost in agony and overtime."

Kudos to the management team who has the marketing and operational savvy to keep or raise earnings in such an environment with no excuses. That would be the management team that I would consider putting my trust and franchise investment into.