Restaurant Sales Improve in February but Growth Continues to be Weak
After a disappointing January, the chain restaurant industry was able to reverse course and post positive same-store sales growth in February. However, at an anemic growth rate of 0.4 percent, February’s same-store sales were far from robust and continue to fuel fears that consumer spending in restaurants has slowed to a crawl. The average growth rate reported for the five months since the beginning of quarter three last year has been 0.1 percent. This insight comes from data reported by TDn2K’s Black Box Intelligence through The Restaurant Industry Snapshot, based on weekly sales from over 23,000 restaurant units, 120-plus brands, representing $57 billion dollars in annual revenue.
“There were several external factors outside of the economy and consumer sentiment that affected February’s restaurant sales,” says Victor Fernandez, executive director of insights and knowledge for TDn2K. “On one hand, the 2015 Super Bowl was included in January’s numbers, while this year, the game was played a week later and fell within February’s results. This meant February’s restaurant same-store sales were negatively impacted by the shift, since restaurant sales are hurt by this event [especially true for full-service restaurants more dependent on the dinner daypart]. On the other hand, severe winter weather continued to be a factor during February. As an example, the third week of the month saw same-store sales growth over 6 percent boosted by regions in the Eastern part of the country that experienced soft sales comparisons due to bad weather last year and which posted sales growth rates above 14 percent for the week.”
Sales growth in February was also challenging for the industry because of its strong performance a year ago. At 2.3 percent growth, February 2015 is tied with June for the best month based on same-store sales growth during the last thirteen months. On a two-year basis, same-store sales growth was about 2.7 percent in February, boosted by an increase of almost 5.0 percent in average guest checks.
Same-store traffic growth was down 1.3 percent during February, an improvement of 1.8 percent from January’s results and the best traffic performance since September of last year. Although traffic growth is also affected by the same external factors that affect sales, there was an interesting dynamic regarding average guest checks during February that may also be a driving force behind the traffic improvement during the month. Average guest checks grew by only 1.8 percent during February, which is the lowest increase in almost two years. The slowdown in average guest check growth in February compared with the previous months suggests that brands may be relying more on price promotions to address consumer dining patterns.
The best performing region in February based on same-store sales growth was New England. This region benefited from favorable sales comparisons: New England had the worst same-store sales growth in February of 2015. Weather has played a major part in this region’s results during the winter months over the last few years. The opposite occurred in Florida. Florida was the softest region in February 2016, but among the nation’s best a year ago.
The softness of February’s sales results can also be seen at the individual market level. Only 95 (or 49 percent) of the 193 DMAs covered by Black Box Intelligence achieved positive same-store sales growth during the month.
“With the winter winding down, we should begin to see the true trend in consumer spending,” comments Joel Naroff, president of Naroff Economic Advisors and TDn2K economist. “Right now, consumption is decent but not great. Government figures for January restaurant sales were down, the first negative month in two years. Since both declines were January sales figures, we need to look past any temporary factors and ask the question: Can household spending hold up? If you look at the income data, wages and salaries are rising at an accelerating pace. Job growth so far this year has been much stronger than anticipated. With confidence in good shape despite the issues in the stock markets, it appears that consumer demand for all types of goods and services should start rising with the better weather. The expectations is that we will see a rebound in the March numbers and sales and traffic should be solid the remainder of the year.”
The restaurant industry has been adding jobs at an accelerating pace according to TDn2K’s People Report. The number of people employed in restaurants grew by 4 percent year-over-year during January. Restaurant employment growth has been consistently stronger than overall job growth in the economy. Restaurant job growth averaged 3.6 percent over the last twelve months, compared with 2 percent growth for total non-farm jobs. Furthermore, restaurant job growth has been accelerating in recent months; the industry has posted an average net growth of 4.3 percent since August of last year, while the average for the first seven months of 2015 was only 2.8 percent.
Staffing at both the manager and hourly employee levels continues to be a critical challenge for restaurants. People Report has recently been reporting on management turnover levels that are higher than what was seen ten years ago, well before the start of the recession. Restaurant manager turnover increased again during January, continuing the trend of rising turnover that started back in 2010.
Restaurant hourly employee turnover has also been increasing over the last six years, but after 28 consecutive months of rising rolling 12-month hourly turnover, the industry’s turnover rate remained flat during January. Even if the rate of increase in hourly turnover might be slowing, the turnover rates currently reported by restaurant brands are well above 100 percent in many cases and remain a cause for concern among operators.
Restaurant guest satisfaction also presented some interesting shifts in February according to TDn2K’s White Box Social Intelligence based on analysis of almost 12 million individual social media mentions during the month, covering over 82,000 restaurant locations from 349 brands. The topics of conversation changed significantly based on the three guest satisfaction attributes tracked for the Restaurant Industry Snapshot: “food,” “service” and “intent to return”. Although the percentage of mentions based on food are still the overwhelming majority of online mentions, the relative importance of service increased during February based on social data. This is an important trend to track in upcoming months, as turnover continues to be a major issue for the industry and its negative impact on service may be increasingly reflected on guest satisfaction. Out of the three guest satisfaction attributes tracked, service has been consistently the one with the lowest percentage of mentions reflecting a positive segment.
Fine dining was, for the fourth consecutive month, the segment with the highest percentage of positive online mentions for each of the three attributes. Four out of the six industry segments tracked improved their percentage of positive food mentions during the month (only fast casual and quick service were down). However, four out of the six segments saw their service results fall during February (only fast casual and upscale casual improved their percentage of positive mentions). All segments except for fast casual had a lower percentage of positive “intent to return” mentions during February when compared with January.
The Restaurant Industry Snapshot is a compilation of real sales and traffic results from over 193 DMAs representing 120-plus restaurant brands and over 23,000 units that are clients of Black Box Intelligence, a TDn2K company. Data is reported in six distinct segments: quick service, fast casual, family dining, casual dining, upscale casual, and fine dining. TDn2K is also the parent company to People Report and White Box Social Intelligence. People Report tracks the workforce analytics of one million restaurant employees. White Box Social Intelligence delivers consumer insights and reveals online brand health in relation to operational metrics. TDn2K reports on over 35,000 restaurant units, 1.5 million employees and $57 billion dollars in sales.