American diners upped their spending in restaurants in July, capping a three-month period marking the fastest sales growth in more than 25 years, according to Commerce Department data released Wednesday.
Sales at foodservice and drinking establishments overall rose a seasonally adjusted 1.3 percent in July, compared with the prior month, to $61.6 billion, according to U.S. Census Bureau numbers. That brought the three-month annualized gain to 25.3 percent, the fastest pace in figures going back to 1992, according to Bloomberg.
Year-over-year, restaurant sales in July were up 9.7 percent, according to the Census report.
The restaurant industry data was part of a broader 0.5-percent gain in retail spending overall in July, which some economists said was a result of rising consumer confidence and having extra cash in their pockets from tax cuts.
Industry analysts, however, note that sales growth hasn’t been quite as exuberant in the chain restaurant segment, noting that guest traffic remains weak.
Traffic at chain restaurants across the country actually declined 1.8 percent in July, according to research firm TDn2K, which reports a monthly chain restaurant snapshot.
Same-store sales at chain restaurants were up a modest 0.5 percent for the month, and that’s compared with July 2017, which was the third weakest month in three years.
“Restaurants had a terrible month in July of last year,” said Victor Fernandez, TDn2K’s vice president of insights and knowledge, noting that same-store sales were down 3 percent at chain restaurants in July 2017. “If anything, it was a great missed opportunity for the industry to post its best results in years.”
In fact, chain restaurant traffic has been down every year since the recession, according to TDn2K.
The sales growth indicated by the Census data could reflect increasing inflation, with menu prices rising, Fernandez said.
Joel Naroff, president of Naroff Economic Advisors and a TDn2K advisor, said it’s possible the Commerce Department’s stronger restaurant sales figures could reflect in part increased spending by consumers at independent restaurants — which are included in the Census data but not in TDn2K’s snapshot.
“I think what we’re seeing is independent restaurants are growing very, very rapidly and, as a result, they’re spreading this expenditure and enlarging the marketplace,” he said.
Another factor is simply that it is summer, and because consumers are feeling more confident financially, they may be traveling more this year, said Naroff. When they travel, consumers tend to eat and drink out, which changes spending patterns.
“One of the things you do see in restaurants in general is that food away from home is rising more rapidly than food at home,” Naroff added. “So with traffic down, revenues being up can come from bigger tickets and/or rising prices.
“Food away from home did really well in July. Chains did not do as well,” Naroff said. “What we need to ask is: Is this a trend that’s continuing or is it just a summertime issue?”
Wall Street analyst David Tarantino of Baird Equity Research, meanwhile, noted in a report this week that July can be a slower month, particularly for casual-dining restaurants, as families are faced with back-to-school expenditures.
He also noted the gap between inflation in restaurants (2.8 percent in July) and inflation in grocery stores (0.4 percent) has widened over the past six months, “and this dynamic may be causing some share to shift to the grocery channel,” he wrote. “Given the historical correlations between inflation differentials and restaurant industry comps, we believe this is a risk factor worth monitoring closely in upcoming months.”
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