QSR & Casual Dining Industry Update

2021 Results Inform 2022 Trends

Bond yields for restaurant borrowers escalated rapidly in March of 2020 as fears over COVID-19 cast a chill on financial markets broadly and the leisure and hospitality sector specifically.

As fears subsided, government stimulus flowed, and restaurants found creative ways to serve customers even without a full dining room. Bond yields fell steadily during Q2 and throughout the end of 2020 with yields remaining at historically low levels, even through the Omicron outbreak in Q4 2021.

With the Federal Reserve signaling tighter monetary policy ahead and pervasive restaurant cost inflation evident in 2021 financial performance, the cost of capital market wide and specifically within the restaurant sector rose throughout Q1 2022.

Real disposable income is historically more than expenditures, implying a level of savings for consumers. At the depths of covid panic in Q1 – Q3 2020, that gap blew out as consumers saved cash and benefitted from government stimulus. From Q4 ’20 through the first quarter of 2022, consumers drew down on savings.

Consumers’ increased propensity to spend combined with severe supply chain disruption led to the highest inflation statistics in decades, with CPI hitting ~8% by the end of Q1 2022, a level not seen since the early 1980s.

Restaurants benefitted from vaccinated consumers’ increased comfort dining in public and their plentiful savings leading to increased traffic, but struggled to combat wage and input cost inflation in a battle to maintain margins.