This post is part of the On the Margin blog.
Earlier this month, Amazon held its “Prime Day” promotion to great success. The day was treated almost like a summertime Black Friday, and sales grew 60 percent.
This had a corresponding impact on retail traffic. According to the research firm Sense360, foot traffic to the entire retail industry fell by 32 percent among users of the Amazon App. That’s a substantial decrease in traffic.
So why am I writing this? Because a further decline in retail foot traffic is bad for the restaurant industry.
Traffic has been weak for some time. Even with improving numbers in June, industry traffic was nevertheless down for the 16th straight month, according to MillerPulse.
The last time industry same-store traffic was up was February 2016, a month that happened to include an extra day. Take that out, and it’s been two full years since restaurants could report a decent traffic month.
As we’ve covered in this space many times, there are a variety of factors to this: Consumers are eating more at home; they are spending more on things like health insurance and have less to spend at restaurants; there are too many locations and the election kept people glued to CNN and Fox News.
But don’t discount retail weakness as a factor in the decline. Consumers have been far more willing to shop for their goods on Amazon and, to a much lesser extent, other retailers.
It’s not rocket surgery, therefore, to determine that fewer people outside shopping at places like Sears or Target or Best Buy means fewer people taking a side trip to Applebee’s or Ruby Tuesday.
Many restaurants have historically made their location decisions based on retail trade areas. Fewer people at those trade areas means fewer potential customers.
Simply look at traffic numbers from the past two Decembers. Traffic in December, 2015 declined by 0.2 percent, including a 1.7-percent decline at casual dining concepts. In December 2016, industry traffic declined by 3.7 percent, according to MillerPulse.
Casual-dining traffic fell 4.6 percent, according to the index. So the number of customers at casual-dining chains fell by 6.3 percent on a two-year basis during the month when customers are out shopping the most. Casual dining tends to be more beholden to retail trends.
And then think of the chains making the most noise in the casual dining sector. They are chains that are destinations, like Cheesecake Factory and Dave & Buster’s, Cooper’s Hawk and Punch Bowl Social.
Shifting retail means that restaurants are going to have to shift their thinking as they develop new locations in the future. They can no longer count on customers outside shopping for foot traffic.
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at [email protected]
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