Restaurants are facing shrinking margins with higher food, fuel, labor and transportation costs, according to a report from the Restaurant Finance group at Mitsubishi UFJ Financial Group.

The rise in labor costs comes from a number of post-pandemic factors including the increased difficulty in drawing new workers and retaining existing ones in a labor market that is demanding higher wages and being more selective in choosing employers, says Nick Cole, head of restaurant finance for the firm.

The decline in profitability will make restaurant companies less attractive as mergers and acquisition targets in the first quarter of next year, MUFG is predicting. The M&A pullback should be significant unless there is an improvement in margins, Cole asserts.

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