- Carrols says it has more menu price increases in the pipeline for its Burger King restaurants.
- Rising costs of wages and supplies are hitting the franchisee's bottom line.
- Carrols operates around 15% of US Burger King restaurants.
The biggest Burger King franchisee in the US is cutting portion sizes and removing some items from promotional discounts amid accelerating inflation.
Restaurants operated by Carrols Restaurant Group have lifted price caps on value menu items and reduced the number of chicken nuggets in meals from 10 pieces to eight, CEO Daniel Accordino said.
The company's more than 1,000 Burger King restaurants have been raising menu prices, with more increases in the pipeline, he said.
This would "partially offset inflation" without deterring diners, Accordino told investors at the company's earnings call Thursday.
Burger King announced last week that it was removing its flagship Whopper burger from its core discount menu, which Accordino said was "one of the most impactful initiatives underway."
Like other chains including Subway, Starbucks, Shake Shack, and Wingstop – which have all put up menu prices – Carrols said that its operating costs were rising due to both wage and commodity inflation.
Restaurants have been raising their wages to attract and retain staff after record numbers of workers in the sector quit during the pandemic because of the industry's low wages, lack of benefits, and poor working conditions.
Carrols increased average hourly wages by 14% in 2021 to help attract and retain staff, Accordino said. He noted that labor availability was stabilizing in early 2022, but that the company expected wages to keep growing.
Accordino said that Carrols' restaurants tried to stay open between 6 a.m. and 11 p.m. wherever possible but had cut their operating hours by around 1% in the quarter to December because of staffing shortages and the spread of the Omicron variant. Operating hours were 4% lower in January 2022 than in January 2021, which was partly down to severe weather, but were becoming more regular in early February, Accordino said.
Alongside paying more for wages, Carrols' supply costs have been climbing, too. Accordino said that the price of beef, which accounts for 25% of Carrols Burger King food costs, rose by a third year-over-year.
"Domestic food, paper producers, and distributors supplying most of our commodities are dealing with labor constraints, along with higher fuel costs, and are passing the increases on to us," Accordino said in a press release. Overall commodity inflation in the fourth quarter reached 16% year-over-year, he said.
Supply-chain disruptions also delayed the company's construction of new restaurants, it said.
Despite a 4.2% decline in traffic in the fourth quarter, sales boomed for Carrols' Burger King restaurants. The average order size grew 12.1% year-over-year, reaching $9.57 in the fourth quarter, Accordino said. The company attributed this partly to menu price increases and fewer promotions.
Four in five of its Burger King sales were from drive thrus. Though delivery made up just 5% of total sales in the quarter, the average check size of these orders was $17.58, Accordino said.
Carrols' rising costs meant that the company posted a net loss of $43 million for the year, compared to $29.5 million in 2020.
Carrols operates 1,028 Burger King restaurants across 23 states – or around 15% of Burger King restaurants in the US, as well as 65 Popeyes restaurants.