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Gas prices can put brakes on restaurant sales

Analyst looks at eight chains and ties gas prices to same-store sales results

Compared to other retail segments, restaurant sales in general are more deeply affected by increased gas prices, with casual-dining restaurants more vulnerable than lower-priced, quick-service competitors, according to an analysis released Monday by William Blair & Co.

The report showed nearly all retail sales have an inverse relationship to gas prices, meaning when prices at the pump rise, retail sales will fall. The William Blair report used a +1 to -1 correlation scale, based on same-store sales results, other performance indicators and gas prices. Results closest to either end showcase the strongest relationships, whether negative or positive. Overall retail sales hold an inverse correlation coefficient of 0.33, while the restaurant sector held the second highest correlation coefficient, behind broad assortment, or varied retail like Target or Kohl’s, at 0.29, the report showed.

“Restaurant sales trends have proved to be the most susceptible to gas prices,” the report said, “with more mixed, company-specific factors affecting both the apparel and leisure industries.”

For months, gas prices have risen as high as those of 2008, when the foodservice industry and the economy were in the throes of the recession. The national weekly price-per-gallon totaled $3.74 as of May 30, compared with $2.68 per gallon during the same last week of May in 2010. In 2008, when spikes were the largest, the price-per-gallon at the end of May totaled $3.91.

William Blair analysts did note that the economy is stronger than it was in 2008; meaning higher gas prices may not pack as large of a punch to sales trends this time around.

“While gas prices this year have largely been outpacing the prior peak in 2008 (albeit with some recent signs of abatement), we believe multiple cross-currents — including a healthy stock market and an improving employment picture — are likely to render the impact on consumer spending as less pronounced,” the report said.

According to William Blair’s restaurant research, helmed by analyst Sharon Zackfia, casual-dining restaurants are most susceptible to increased pump prices than lower-priced or quick-service concepts.

“It used to be that QSR was the most susceptible to rising gas prices, but increasingly it appears that casual dining is the most vulnerable,” Zackfia told Nation’s Restaurant News. The report included eight restaurant brands among 73 consumer-retail companies the bank covers.

“Part of the reason that has occurred now … versus what appeared 10 years ago, is there are so many options now to trade out of casual-dining, whether it’s fast casual or the better-quality offerings of QSR,” she said.

Zackfia, who has covered restaurants for 11 years, noted that quick-service is less vulnerable today because of the sector’s focus on a diversified menu and higher price points.

“At the end of the day, QSR 10 years ago was obviously a very different animal than it is today. It was basically burgers, fries and [a drink],” Zackfia said. “And obviously now you can get anything from a caramel latte to a chicken salad. They’ve done a good job broadening their menu and up-selling a bit more.”

Zackfia covers eight public restaurant stocks. Her notes on each chain’s relationship to gas prices:

-The Cheesecake Factory Inc. and P.F. Chang’s China Bistro Inc. are the most vulnerable to higher gas prices, according to performance, Zackfia wrote, “suggesting that consumers have a propensity to trade down out of casual dining as gas prices rise.”

- BJ’s Restaurant Inc. showed a less significant correlation with gas prices “likely reflecting sales resilience associated with a low, affordable average ticket of roughly $13.”

- Chipotle Mexican Grill Inc. showed a “a relatively high inverse correlation between same-store sales and gas prices, although we suspect much of that correlation is relatively spurious, as Chipotle’s comps naturally decelerated from 20 percent-plus comps pre-2005 to more mature (but still impressive) levels in the latter part of the decade,” the report said.

- Panera Bread Co. and Caribou Coffee Co. showed “very little correlation between sales and gas prices, perhaps reflecting a more-affluent customer base,” the report said. Zackfia added that Caribou is very geographically concentrated, which may have affected the lower impact of gas prices.

- Starbucks Corp. showed a relative high correlation, the report said, stemming in part “from the more discretionary nature of the company’s non-morning dayparts, which tend to be more ‘treat’ driven.” Zackfia added that “people may need their morning coffee but they may not need their afternoon frappaccino.”

Survey: Gas prices have yet to hurt sales
What rising gas prices mean for restaurants

Contact Ron Ruggless at [email protected].

Follow him on Twitter: @ronruggless

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