In early March, the average price for a gallon of gas in the U.S. was below $3. A U.S. attack on Iran, followed by the closure of the Strait of Hormuz, where 20% of the world’s oil supply passes through, led to an energy crisis.
As of Monday, a gallon hit $4.46, the highest since 2022. That’s an increase of about 50%, or another $31 for someone who uses 20 gallons of gas a week.
That may not sound like much, but it’s hitting a low-income consumer that’s already spent the past couple of years cutting back. And there’s plenty of evidence to suggest that these prices are showing up in weaker sales.
In March, for instance, restaurant sales increased 0.1% month over month, less than the 0.2% increase food away from home prices, according to federal data.
Over the past year, total industry sales have basically kept pace with prices. Restaurant sales are up 3.8%. Prices are up 3.8%, too.
Some early data do not suggest a better April. According to the Small Business Index from the financial services company Fiserv, restaurant sales declined 0.2% month-over-month and 1.6% year-over-year in April. Limited-service restaurant sales are down 4.8%, with traffic down 5.1%.
None of this should be surprising. Consumer sentiment as measured by the University of Michigan fell to its lowest rate since 2022. How the consumer views the economy is the biggest driver of sales right now.
Early results from restaurant chain earnings might suggest a strong start to the year, as Starbucks and Taco Bell performed admirably while Chili’s had another good report and Chipotle surprised to the upside. Yet even some of those companies suggested conservatism going forward, given the economic uncertainty.
Starbucks, for instance, kept its guidance for the year more conservative than would seem given that it reported 7.1% same-store sales in the first three months of the year. Executives cited gas prices.
“We haven’t seen a lot of the macro effects trickle into consumer behavior as it relates to Starbucks,” CEO Brian Niccol said. “But I think we want to be cautious going forward because we’re not sure how this will play out as the issues continue to happen, whether it shows up in gas prices or utilities or other input costs like fuel costs.”
Domino’s reported disappointing earnings in its first quarter and said that pressure intensified as the quarter went on, particularly in March.
“There is really more impact on the consumer disposable income,” Domino’s CEO Russell Weiner told analysts. “That will continue to be a driver of both consumer confidence and what our customer is able to afford if gas prices are higher.”
He argued that “profitable value” will remain crucial for pizza chains going forward. “The companies that are going to succeed during this timeframe are the ones who can continue to drive profitable value, because that is not going to change,” he said.
Wingstop, which reported a dismal, 8.7% decline in first-quarter same-store sales, likened the impact of gas prices to 2022, when soaring gas prices hurt the buying power of lower-income consumers.
Michael Skipworth, CEO of the fast-casual chicken chain, said that the company’s sales stabilized early in the quarter and worsened in March. “We looked at how our business responded and how our core consumer responded when gas prices reached similar levels in 2022,” he said, according to a transcript on the financial services site AlphaSense. “And we saw a pretty similar reaction this year in March in our business.”
The bigger question for the balance of the year may be with food costs. Diesel prices have hit $5.64 a gallon, close to the $5.82 record of 2022. That could lead to higher food costs as distributors add fuel surcharges to offset those costs.
That has driven up the cost of farm work. So, too, has a shortage of fertilizer, which has driven up those costs. According to the American Farm Bureau Federation, 70% of farmers in a recent survey said they could not afford all the fertilizer they need, and six in 10 farmers say their finances are worsening.
All of which is to suggest that the restaurant industry hasn't felt anything close to the worst impact from the past couple of months.