On the Margin
Restaurant CEOs: Economy causing sales issues

Restaurant CEOs: Economy causing sales issues

This post is part of the On the Margin blog.

In this space in recent weeks, we’ve discussed at length the growing competition from grocery stores, which have lowered prices this year. The reduced prices directly coincide with a decline in restaurant sales.

But more sources recently have suggested that the economy is the bigger concern. Some of those sources are the chief executives of the restaurants we’re talking about.

Sally Smith, the CEO of Buffalo Wild Wings Inc., said this week that the industry is lapping some easy comparisons early this year. And she suggested her chain’s customers are “reluctant” to spend.

“We are lapping over low gas prices last year,” Smith said on the chain’s earnings call Tuesday. “While unemployment is low and wages are going up, whether it’s retail or restaurants, people are very reluctant to spend a lot of discretionary dollars.”

Earlier in the week, McDonald’s Corp. CEO Steve Easterbrook said something similar.

“There’s a widening gap between food-away-from-home and food-at-home prices,” Easterbrook said. “Commodity cost decreases are being passed through by grocers. There’s value to be had for families. That’s a small part of it.

“There’s generally a broader level of uncertainty in consumers’ mind at the moment, trying to gauge their financial security, with elections, global events. They’re mindful of an unsettled world. When families are uncertain, caution prevails.”

Early indications from restaurant earnings suggest a broad decline in same-store sales, at least outside of the pizza category. Even Arby’s, a private chain that yesterday said its same-store sales rose 3.7 percent, reported a sequential easing of its same-store sales growth.

As we’ve seen this week, there is a growing sentiment among some analysts that the cause of this is broad, economic uncertainty. Paul Westra, the analyst from Stifel, unleashed a mass downgrade this week of 11 different companies and said he expects long-term sales issues.

And then Jefferies analyst Andy Barish called “the top of the restaurant cycle” and lowered the ratings on five different concepts.

I remain skeptical of the recession idea. Too many numbers are heading in the right direction, and the concern is all over a single number — same-store sales — that has only been problematic for two quarters, and which is traditionally easy to manipulate.

Yet economic uncertainty, especially in an election year dominated by bad news and social unrest, could clearly be influencing consumer decisions. How long this lasts remains to be seen.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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