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Research Announcement:

Moody's – Margin pressure back on menus as US restaurants labor with worker shortage, inflation, hampering earnings recovery

06 October 2021


New York, October 06, 2021 --

  • Restaurants face rising margin pressure from worker shortage and inflation
  • Supply chains, also struggling with a labor shortage, will add to near-term cost pressures

Restaurants are grappling with unparalleled labor challenges amid existing disruptions from the pandemic, says Moody's Investors Service in a new report. The labor shortage is exerting pressure at a time when the industry is recovering revenue losses from the pandemic and facing fresh health concerns about the Delta variant.

"Finding, attracting and keeping workers has never been more difficult, even as restaurants continue to reopen and customers flock back. Should the current labor shortage persist and the incident of quarantines due to the Delta variant become more frequent, restaurants will be forced to increase wages to attract the staff they need," says William Fahy, a Vice-President and Senior Credit Officer at Moody's Investors Service.

While labor needs have declined with restaurant closures and the adoption of digital capabilities, these technology advances are not enough to compensate for real-time labor needs. Rising labor costs will continue to pressure margins as minimum wage requirements steadily climb higher and as operators offer more competitive compensation to keep pace with the labor market.

"Overall, the larger and better capitalized restaurants will be better equipped to ride out any new or ongoing disruptions from the pandemic while smaller local and mom & pop operators will struggle to keep up," adds Fahy.

As suppliers struggle with labor challenges of their own, it has resulted in some restaurants having to substitute product, accept higher costs and in some cases, participate further back into the supply chain to help. So far, restaurants have been able to pass along a lot of the higher costs associated with labor, commodities and supply chain to customers. However, this tolerance will be tested as consumers contend with longer wait times and fewer menu choices. Once consumers begin to balk at the higher prices, losing patience with longer waits or not having their favorite menu item, inflation will exert pressure on restaurant margins.

While Moody's still expects that industry conditions will improve over the next 12 months as consumers continue to dine out and as government restrictions are eliminated, health and safety concerns are rising again as the delta variant of the coronavirus spreads. This along with the current labor shortage, supply chain issues and inflation pressures is putting an added level of risk to Moody's earnings forecast for the restaurant industry.

For more research and insight on the coronavirus (COVID-19) outbreak, please see moodys.com/coronavirus.

Subscribers can access the report, "US Restaurants – US: Margin pressure back on menu's as industry labors with worker shortage, inflation, hampering earnings recovery," at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1299166

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at [email protected] or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

William V. Fahy
VP-Sr Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Margaret Taylor
Associate Managing Director
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
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U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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