Restaurants might get a lift from cooling inflation, cheaper gas

Yahoo Finance's Brian Sozzi discusses potential tailwinds coming to the restaurant industry, including falling gas prices and the latest inflation data.

Video Transcript

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JULIE HYMAN: Restaurant chains were hit hard by the high price of gas in the second quarter. But of course, gasoline prices have pulled way back in recent weeks. And Sozz is going to tell us why that could be a good win for the industry. Makes sense.

BRIAN SOZZI: Yeah, gas prices below those June highs. I believe the high was $5.03 a gallon on June 14, according to GasBuddy. But look, the restaurant industry had a challenging conclusion to the second quarter. We're seeing that with Sweetgreen today, challenging end to their quarter. Now might start to see some better traffic and sales gains in coming quarters, given gas prices, I believe, are down for more than 50 straight days. But I put this question to Dine Brands CEO John Peyton. John Peyton telling me that inflation could be coming down. Gas prices are likely to continue to go down. Here's what he told us about the outlook for gas.

JOHN PEYTON: Gas prices do correlate to traffic into and out of our restaurants. So we're encouraged by 50 days of declining gas prices. And we do believe in the back half of the year, that's going to encourage some of those lower income guests to return to IHOP more frequently and Applebee's more frequently than they had.

BRIAN SOZZI: So potentially, a big headwind for Dine Brands, and of course, I'm sure many of its competitors, like a Darden, which owns Olive Garden and other chains as well. But the graphic we were just showing are a couple other potential catalysts. And I think we look back to today's CPI, one of those potential catalysts are peak food inflation. Brooke DiPalma was breaking them down for us.

Now, we're still seeing gains, but maybe not the gains we were seeing in the first and second quarter. Perhaps some relief for a lot of restaurant chains. And another one that we haven't talked a lot about may be peak wage inflation, given a lot of folks, well, are now-- we're starting to see some layoffs here. Perhaps that is more of a greater talent pool for the restaurant industry, perhaps brings down wages just a little bit.

BRAD SMITH: OK, so what's the take here today? Because unlimited salad and breadsticks, for me, is a savings mechanism, from the consumer perspective.

BRIAN SOZZI: We're going to stay on food. Here's my take for today. There we go. Ba-da-bum. "Bullish on IHOP pancakes, verdict out on new Papa John's bowls."

BRAD SMITH: Oh, no.

BRIAN SOZZI: I can't tell you-- you know, I have a story going up shortly on-- another story from this Dine Brands interview talking about how they have not pulled back on portion sizes, or "shrinkflation." You've been talking a lot about that, Brad, too, as well. So Peyton telling us, we're keeping our portion sizes the same, we're not cutting back. That's not--

JULIE HYMAN: But they're probably raising their prices.

BRIAN SOZZI: Prices are, in fact, up, but we're seeing shrink inflation across many other of his competitors. You look over at Yelp, put out some new data. Shrink inflation is a top concern among many diners right now.

BRAD SMITH: All right, bring the ruler with you to IHOP from here on out, everyone. Measure those pancakes.