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In Focus: The Restaurant Industry

 

Raleigh, N.C., June 10, 2014 - Net profit margins for the restaurant industry continue to improve following the recession, according to data from financial information company Sageworks.  Beginning in 2009, net profit margins have steadily increased each year, topping off at 5.1 percent in 2013 while sales growth slipped only marginally.

 
Food and labor costs are the largest expenses for operating a restaurant, explained Sageworks analyst Kevin Abbas. “As we continue into 2014, restaurants may continue to face rising food costs, increased labor costs and economic uncertainty. The challenge to privately held restaurants will be whether or not to pass on those expenses to the consumer in menu prices or absorb some of those costs to maintain a loyal, local customer base.” Abbas noted that some of the currently positive trends within the industry may reflect advantages gained from the use of technology, which have allowed some managers to better track sales and expenses in order to optimize their business models.
 

“One broad theory is that restaurant owners were able to better manage their restaurants in 2013, as reflected in increasing net profit margins,” Abbas noted, “this year, owners are likely to be keeping an eye on the current minimum wage debate, as increases in labor costs would impact efforts to maintain and grow the bottom line.” According to Pew Research Center, nearly 44 percent of minimum-wage workers are in food-preparation and serving-related occupations.

 

 

Compared to other industries, restaurants fared relatively well during the recession. Whereas most saw a dramatic decrease in sales during 2009, restaurants were able to generate growth albeit at a rate below the historical average for the industry. Following 2009, sales growth remains healthy at around 5 percent each year. There are two main drivers of sales growth for a restaurant: more visits or increased spending per visit. Based on a survey of research focused on restaurant traffic, it seems likely a large part of growth for restaurants is driven by growth in average spending per visit, as research has indicated restaurant traffic has remained flat.

 

When analyzing sales growth by region, restaurants in the northeast saw a dramatic slowdown in 2013 compared to the other regions. Looking at net profit margins by region, restaurants located in the south saw much higher margins compared to restaurants located in other regions in 2013 (6.7 percent versus approximately 4.0 percent, respectively).

 

View a map of the regions.

 

 

About Sageworks

Sageworks is a financial information company and the leader in the analysis of privately held companies. The company provides risk-management solutions to financial institutions and financial analysis and benchmarking applications to accounting firms and private companies. Sageworks data and applications are used by thousands of accounting firms and financial institutions across North America and internationally.

 

About Our Data

Sageworks possesses a proprietary database of privately held company financial statements aggregated by industry. Sageworks aggregates private-company financial statements from accounting firms, banks, and credit unions through a cooperative data model with their clients. The data is segmented and can be queried by 1,400 industry codes, 70 financial metrics, company size and geographic location.   Sageworks releases a quarterly Private Company Report, which provides a snapshot of U.S. private-company performance. Sageworks data and analysis has been used by most major media outlets and is featured weekly on Forbes.com through the "Sageworks Stats" blog.

 

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Sageworks Data & Research Team / Email: research@sageworks.com / Phone: 919-851-7474 ext. 596 / Twitter: @sageworks