uploads///Fuel Prices

Lower Fuel Costs Boost Restaurant Industry

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Jan. 8 2020, Updated 5:53 p.m. ET

Declining fuel prices

Fuel costs declined significantly over the past eight months. From a $3.67 per-gallon high in June 2014, regular gas fell to $2.40 per gallon as of April 2015. Diesel also declined in April 2015, down to $2.80 per gallon from $2.90 per gallon in March 2015, as you can see in the chart below. Low fuel costs are positive for both the supply side and the demand side of the restaurant business.

 

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How fuel costs affect restaurants

The connection may not seem direct but many restaurants are affected by higher fuel costs because they have to pay to transport ingredients. Supply transportation costs put pressure on operating costs and squeeze profit margins.

The demand side also takes a hit. When gas prices are high, consumers tend to economize on transit by cutting out unnecessary trips. This trend certainly affects restaurants that rely on drive-through sales. For example, McDonald’s (MCD), KFC under the umbrella of Yum! Brands (YUM), Wendy’s (WEN), and Brinker International (EAT), all offer drive-throughs.

Some of these restaurants are also included in the Consumer Discretionary Select Sector SPDR Fund (XLY). One such restaurant is McDonald’s (MCD), which makes up ~4% of XLY.

Retail store sales are measured using the same-store sales metric. Same-store sales give investors an indication about whether the current store is growing revenues. We’ll look at this in the next part of this series.

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

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