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Financing

Food and labor costs hit Del Taco as sales recover

The Mexican fast-food chain says its same-store sales rose 3.6% when compared with 2019 and all dayparts grew outside of breakfast.
Del Taco sales
Image courtesy of Del Taco

Del Taco on Thursday said that its same-store sales grew 3.6% when compared with 2019 and that sales grew during all dayparts outside of breakfast—which was flat when compared with the pre-pandemic period.

Yet costs are up, too. The Lake Forest, Calif.-based chain said it is paying high costs both for food and labor this quarter.

The company said that food costs are expected to rise 5% this quarter, due to higher charges for beef, soybean oil and freight, CFO Steve Brake said on the company’s second quarter earnings call, according to a transcript on the financial services site Sentieo.

“Recent inflationary pressure has materialized beyond our original second half food inflation expectations,” Brake said. “Particularly in the areas of beef, soybean oil, freight and other input costs.” He said some of the food cost increases are expected to be “temporary” but “meaningful.”

Labor, meanwhile, is expected to rise 6% this year due in part to a $1 increase in the California minimum wage, to $14 an hour, while market rates in other areas are rising, too.

To offset this, Del Taco is doing what everybody else is doing: Raising prices. The company took a 4% menu price increase. The increase more than offset the cost increases. Labor as a percentage of sales, for instance, declined to 32.9% in the quarter from 33.2% a year ago.

Executives said they are not seeing major problems of getting enough people to staff restaurants—outside of what CEO John Cappasola called some “hotspots.” He said the company has developed a recruiting, scheduling and retention strategy to get and keep workers.

The company made July an “employee appreciation month,” with “uniform theme days” and food and other treats. It also provides referral bonuses and daily pay. Cappasola said that turnover is “slightly” higher than it was last year but “still below industry average.”

“Our operators and our franchisees are just doing a fantastic job staying focused on our people in managing the situation,” he said.

One of Del Taco’s main strategies at the moment is its breakfast business. While all of its dayparts have seen sales growth, that daypart remains flat—an improvement from prior quarters but nevertheless an area where executives believe they can generate growth.

The company introduced a new line of breakfast tacos with two types of cheese, “Double Cheese Breakfast Tacos.”

“We believe this offering can jump-start our breakfast sales” as offices repopulate and kids return to in-person school, Cappasola said.

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