Restaurant industry same-store sales increased 3.3 percent in May, and margins reached a 12-month high, according to the latest MillerPulse survey.
But traffic at casual-dining chains fell 2.3 percent, the segment’s worst performance since April 2014, as consumers apparently shifted spending to limited-service restaurants.
Indeed, the two segments went in starkly different directions in May. While casual-dining traffic fell 210 basis points, compared with April, quick-service restaurant traffic rose 40 basis points, to 0.3 percent.
Quick-service same-store sales increased 3.6 percent, a 20-basis-point improvement from April, while casual-dining same-store sales rose 1.1 percent, a 170-basis-point decline from April and the weakest figure for that segment since July 2014.
The results indicate a significant divergence in trends for the month, said Larry Miller, co-founder of the monthly MillerPulse survey.
“They sort of went in opposite directions,” Miller said. “QSR got stronger. Casual dining got weaker. I don’t think we’ve seen a month where they went in different directions like that. They very much went in opposite directions.”
The question, he said, is why.
“I don’t have a good explanation for it,” he said. “Consumers at the margin pulled back in May in casual dining.”
Despite the performance, Miller said, the casual-dining segment is still in a better spot than it was a year ago. And the restaurant industry as a whole remained strong during the month.
“Three-percent overall [same-store sales increases],” he said. “I’ll take that all day.”
Same-store sales as tracked by MillerPulse have risen 3 percent to 3.5 percent each month since February, and same-store sales have increased at least 3 percent each month since November 2014. Traffic has remained relatively flat, but that is an improvement from a year ago, when traffic was declining 1 percent to 2 percent.
The industry has tailwinds this year from lower gas prices and rising employment, which lowers consumers’ costs and puts them to work — thus increasing their need for restaurants and giving them the financial wherewithal to pay the tab.
But those conditions also lend themselves to quick-service restaurants, which are more convenient and less expensive.
Some of these tailwinds could lose their effectiveness as the year progresses, particularly as the comparisons from 2014 grow tougher.
“The restaurant business is on solid footing,” Miller said. “Sales could moderate in the second half of the year as the industry laps harder comparisons.”
Yet, he said, the economic conditions could lend themselves to an “upside surprise” for the rest of the year.
The good news for the industry is margins. Restaurant margins were 17.3 percent in May, the best result in a year, Miller said, and operators expect those margins to improve. Food costs are moderating this year, particularly for pork and dairy, while beef costs are flat.
Even if same-store sales moderate as expected, he said, operators could still see profits.
“It’s starting to happen already,” Miller said. “Will sales moderate a bit? Yeah. Will they have less pricing power? Probably. Will that restrain margin growth? Probably. But we’re already starting to see pretty nice margins. And it’s been a while since we’ve said that.”
Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze