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Report: Flat sales growth to start new year still marks improvement

Industry breaks out of 10-month pattern of negative same-store sales, according to TDn2K’s Black Box Intelligence

This exclusive series to Nation's Restaurant News provides insight into the sales and traffic data from clients subscribing to Black Box Intelligence, a financial performance benchmarking company. The views expressed here do not necessarily reflect those of Nation's Restaurant News.

The restaurant industry kicked off the new year in a much more uplifting fashion than it ended 2016. 

While same-store sales grew 0 percent in January, the results represented a welcome break from 10 consecutive months of negative sales growth through the end of last year. A jump of 4.3 percentage points in January was the biggest month-to-month improvement in same-store sales in almost four years, according to data reported by TDn2K through The Restaurant Industry Snapshot, based on weekly sales from nearly 26,000 restaurant units and more than 130 brands, representing $65 billion dollars in annual revenue.

“Although positive sales growth is always welcome, we have to be cautious about getting too optimistic about these latest results,” said Victor Fernandez, executive director of insights and knowledge for TDn2K. “On one hand, it is common to see some large swings in comp sales during the winter, as significant weather events create fluctuating year-over-year comparisons. For example, sales were up between 20 and 65 percent in three of the regions on the East Coast during the third week of the month — clearly weather related.”

Other events in January impacted restaurant sales. The new year kicked off with a federal holiday on Jan. 2, followed a few weeks later by the inauguration of President Donald Trump and subsequent mass protests nationwide.

“The combined impact is difficult to gauge, but operators will closely watch performance in upcoming weeks to get a sense if the downward trend in sales has been reversed or was simply obscured in all the noise,” Fernandez said.

Consumer spending is solid

According to Joel Naroff, president of Naroff Economic Advisors and TDn2K economist, growth slowed in the last quarter of 2016, but the overall number was misleading. 

“Consumer spending was quite solid and demand for domestic goods was strong,” Naroff said. “Incomes, including wages and salaries, grew at a solid pace, and the gains accelerated in the second half of the year. With the labor market continuing to tighten, that trend should continue this year. That bodes well for consumer spending, which could be even stronger in 2017. Millennials are moving into their 30s, and that means they should start forming households and having families. While they have greatly altered restaurant demand already, their aging could lead to another round of changes. Though any new trends that may emerge may be a few years off, it needs to be tracked starting now.”

Traffic and average check improving

Same-store traffic dropped 2.5 percent in January. Although traffic is still negative, January was the best month for the industry since last May. Average check rose 2.4 percent in January. Average check has grown at 2.3 percent year-over-year since August 2016.

The two-year view

A two-year view of sales performance reveals that January’s sales growth was relatively weak. Same-store sales fell about 0.8 percent, compared with the previous year. Two-year sales growth has been negative for all months since October 2016. In contrast, same-store sales calculated on a two-year basis grew an average 2.5 percent during the first six months of 2016, and increased an average 3 percent for all months of 2015.

Fast casual sees weakest sales

Three segments experienced positive sales growth in January: upscale casual, family dining and quick service. Quick service has consistently been in the top spot, but had slipped in the past two months and rebounded in January.

Fine dining and fast casual saw sales decline in January. For the first time in over five years, fast casual was the weakest-performing segment based on sales growth.

Also noteworthy is that casual dining was able to achieve flat results in January, breaking a streak of 13 consecutive months of negative same-store sales.

Turnover woes continue

Restaurant industry woes continue to extend beyond declining sales and into the increasingly difficult task of staffing. In December, restaurants once again saw an increase in hourly employee and restaurant manager turnover, according to TDn2K’s People Report.

Turnover rates for managers and hourly employees started to increase in 2010. Those rates are currently at the highest levels reported in over 10 years. Turnover is clearly correlated to the overall unemployment rate, which means that, at close to full employment, continued employment pressures are expected through the year.

Terminated managers stay in the industry

A recent survey by People Report revealed that 62 percent of responding restaurant companies estimate that over half of their terminated managers leave to work for another restaurant company.

“Right now, there are many vacancies appearing every day for restaurant managers, and they are mostly getting filled by people leaving their current restaurant jobs,” Fernandez said. “Many restaurant managers are not finding what they are looking for in their current jobs and are very willing to go look for it at another restaurant company.”

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