To combat declining sales margins and rising labor costs, Louisville-based Texas Roadhouse plans to raise its menu prices by 1.7 percent this month.
“Growing labor inflation remains a challenge for next year,” said Texas Roadhouse president Scott Colosi. He added that minimum wage is increasing in various parts of the United States, and wage competition is rising as well.
The company raised menu prices in August at only 15 stores, including those in New York and California, which were more greatly impact by rising labor costs. Prior to that, company-wide prices rose 1.5 percent in November 2014.
Texas Roadhouse executives previously have said they spend time talking to their restaurant operators to get their feedback before a price increase. While many don’t like to see increases, Colosi noted that operators in New York are facing a 50 percent increase in wages for tipped employees.
“A lot of our folks have been around this business a long time, and they get a balance of having limited price increases and having a good service model,” Colosi said.
Labor costs have cut into the company’s restaurant margins, causing them to decline 22 points to 16.6 percent. Still, Texas Roadhouse saw positive outcomes during the third quarter of this year compared to the prior year.
The steakhouse chain reported a 6.9 percent increase in same-store sales at company-owned stores and 7.7 percent at franchisee-run stores. It is the 19th consecutive quarter that same-store sales have risen.
Revenues rose 14 percent to $438.1 million for the quarter compared to the same period a year ago. Net income increased by 8 percent to $20.5 million.
“We do not take our success for granted,” Texas Roadhouse CEO Kent Taylor said.
Restaurant operators continue to look for ways to improve the company’s margins, he said.
Next year, Texas Roadhouse predicts continued same-store sales increases and lower food costs.
High beef costs have been a thorn in Texas Roadhouse’s side for a while, but the company has locked in about 75 percent of its beef purchases for 2016 and is predicting single low-digit deflation.
“This is a welcome news,” Taylor said.