On the Margin
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Restaurant sales slow again in March

Blog: Federal restaurant sales data weakest in three years

This post is part of the On the Margin blog.

Restaurant sales rose 2.8 percent in March, according to federal data, slowing for the second straight month as the industry faces its weakest environment in more than three years.

The result was a slowdown from the 3.7 percent growth in February, and was the lowest since December. Yet, outside of a 6-percent growth rate during the weather-aided month of January, sales since December have been at their lowest rates since 2013.

That was the year the federal government ended a two-year reduced Social Security tax rate. And gas prices were still near record highs.

This is federal data. It is not to be confused with sales indexes, like Black Box and MillerPulse, that track same-store sales — which measures sales changes at existing locations. Thus, the 2.8 percent figure represents total industry growth, including new locations. 

And 2.8 percent is historically low. Since 2009, restaurants averaged 4.8 percent sales growth. But take out the ugly 2009 recession year, and that average increases to 5.5 percent. 

Before December, when restaurant sales grew at a paltry 2.5 percent, industry sales grew lower than 2.8 percent only five months.

The numbers are the clearest suggestion of a slowdown in the restaurant industry, as consumers shift their spending toward other areas.

Overall retail sales increased 5.5 percent. While consumers have slowed their spending at traditional retailers like Kohl’s and Target, they’re spending more at online merchants. 

The bigger question is whether this is a temporary blip, or a long-term trend. In general, industry sales go through cycles, as issues such as the economy, tax policy, inflation, weather and gas prices influence consumer decisions.

Restaurant industry same-store sales have been weak for the past year, and total industry sales growth has been weakening in the process.

Some of that blame, as we’ve written here before, goes to grocery stores. Lower grocery prices appear to be taking some demand away from restaurants. Grocers’ prices fell by 0.9 percent in March, while restaurant prices increased 2.4 percent, according to federal data. 

Overall, grocery store sales increased 3.4 percent in March.

At the same time, however, it’s possible the industry has hit a saturation point, making growth more difficult to come by. By all accounts, the economy should be pointing toward more growth in the restaurant industry, and not less.

But years of aggressive development and new concept creation and the entry of new competitors have filled the industry with locations — faster, it appears, than consumers are willing to fill those locations with their business. 

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at jonathan.maze@penton.com

Follow him on Twitter at @jonathanmaze

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