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Lower Fuel Costs Help Restaurants – Good For Supply And Demand

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Declining fuel prices

Fuel costs declined significantly over the past eight months. They declined from a high of $3.67 per gallon for regular gasoline in June 2014 to $2.20 per gallon as of February 2015. Diesel also hit its lowest point in February 2015 at $2.80 per gallon—from $4 in March 2014. You can see this in the following chart.

This is positive for restaurants. It helps both the supply and the demand side of the business.

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How do fuel cost impacts restaurants?

The connection may not seem direct, but several restaurants are affected by the higher fuel costs incurred in supplying ingredients to the end location. This puts pressure on operating costs. It squeezes the profit margins.

It isn’t just the supply side that’s affected. The demand side also takes a hit. When gas prices are high, consumers tend to economize their transit by cutting down on unnecessary trips. This trend certainly affects restaurants that rely on their drive-thru sales. For example, McDonald’s (MCD), KFC (Kentucky Fried Chicken) under the umbrella of Yum! Brands (YUM), Wendy’s (WEN), and Brinker International (EAT), all offer a drive-thru facility at their locations.

Some of the restaurants mentioned above are also included in the Consumer Discretionary Select Sector SPDR (XLY). XLY holds ~4% of McDonald’s.

Retail store sales are measured by the same-store sales metric. It gives investors an indication of whether the current store is growing its revenue.

To read more about our restaurant earnings and company overviews, visit our Restaurants page.

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