The Traffic Problem Persists for Restaurants
As this past month’s restaurant results suggest, the industry’s health is in a better place than it was a year ago. It’s far from a full recovery, though. TDn2K’s latest industry snapshot showed 0.8 percent same-store sales growth during October. As thin as that might seem, it still represents five consecutive months of positive gains.
But more telling is the widespread path to better guest counts: Higher prices to balance lower traffic.
“There seems to be an oversaturation of restaurants and competition. Independent restaurant operators and players outside the restaurant industry [prepared goods in grocery stores, convenience stores] continue to steal dining occasions from chain restaurants,” TDn2K said.
In October, comparable traffic declined 2.17 percent. It’s down 1.43 percent in the rolling three months. This plan to increase sales, TDn2K said, where price points lift comps, not additional customers, tempers optimism regarding the overall strength of restaurants, and spotlights industry-wide problems. The 2.2 percent decline was a 0.8 percentage point dip from September and the weakest month for traffic growth since May.
“Guest check growth accelerated in October,” said Victor Fernandez, vice president of insights and knowledge for TDn2K, in a statement. “At 3 percent, check growth during October was the highest we’ve seen in the last three years. Many brands have been raising their menu prices throughout the year, use of promotions to drive traffic may be slowing down and strong consumer confidence plus raising wages may be motivating consumers to spend a more when they dine out. Likely, we are seeing a combination of several or all of these factors.”
Same-store sales of 0.8 percent were a slowdown from the 1.2 percent reported in September and the 1.8 percent recorded in August. However, a positive sign did emerge. Same-store sales growth on a two-year basis was 1.1 percent during October. To compare, two-year sales growth rates averaged negative 0.9 percent for the previous six months.
“As the industry heads into the fourth quarter, the fear was that tougher sales comparisons from Q4 of last year would throw restaurant sales back into negative growth territory,” Fernandez said. “For reference, two out of the three months had positive sales growth during the fourth quarter of 2017. No other month of 2017 reported positive sales growth. But seeing restaurants grow their sales during October on top of positive sales growth during the comparable month a year ago suggests the industry’s sales momentum is robust and can carry into the New Year.”
Casual, fast casual, and positive markets
From an individual market perceptive, positive same-store sales were widespread in October. Of the 196 individual designated market areas tracked by Black Box Intelligence, 144 (or 73 percent) achieved positive sales growth during the month. For the last four months, between 73–76 percent of markets have reported positive gains. Only three of the 11 regions of the country saw their sales drop during the month, year-over-year.
The strongest region was the Southeast, with sales of 2.23 percent and negative traffic of 0.84 percent. The weakest was Florida, with negative sales of 1.65 percent and a traffic plummet of 4.21 percent.
All segments except for family dining achieved positive same-store sales in October.
The best based on sales growth were fast casual and casual dining at 1 percent. Both have turned in the widest improvement this year after two calendars of rough results. In fact, they’re the only segments with positive sales growth during each of the last five months.
“Much discussion has centered around the viability of casual dining in this changing consumer landscape. However, the data shows some brands in the second largest segment within the industry have been able to turn the segment around this year,” TDn2K said.
Labor doesn’t let up
On the labor front, after turnover rates appeared to stabilize in recent months, turnover again increased in September for hourly employees and restaurant managers.
TDn2K’s People Report also showed that the number of jobs in chain restaurants grew 1.7 percent after a year-over-year growth of 2.1 percent during the previous month. According to its Workforce Index, 58 percent of restaurant companies plan to add hourly workers during the fourth quarter, while 51 percent said they plan to add management staff.
“Not surprisingly given the environment, the latest People Report Workforce Index also revealed that about 70 percent of restaurant companies reported an increase in their staffing difficulties for both restaurant hourly employees and managers,” TDn2K said.
“As the labor market experiences its lowest unemployment rates in almost fifty years, restaurants should be expecting rising labor costs ahead,” it added. “With plenty of employment opportunities in the market, restaurant employees [particularly in management and back of the house] frequently mention pay among the main reasons they are quitting their jobs. Higher wages and salaries will have to be a part of many restaurants’ employment offerings if they are to remain competitive in the market.