Inflation began its decline in late summer, the short-term increase in gas prices has since subsided, and the impact of those economic trends can be seen in consumer spending at restaurants.
However, when looking more granularly at the data, same-store sales growth was -3.4% year-over-year in November. When comparing November against the growth rate reported for both September and October, sales took a 1.8 percentage point drop. This November’s sales growth is the lowest posted by the industry since July’s +0.3%.
It was not only sales growth that eroded during the month. Traffic was down too, albeit dropping by a smaller margin. Same-store traffic growth was -4.3% in November, down by 1.1 percentage points relative to the previous month and the worst outcome for the industry since July.
November seems to be a good preview of what trends could lie ahead, as traffic softens, bringing moderation in sales growth as a result. Once the very high menu price increases start abating, as is expected, it will be increasingly harder to post strong positive same-store sales growth as was the case for most of 2022.
All industry segments were able to achieve positive same-store sales growth during November when compared to their sales for the same month back in 2019, which undoubtedly is welcome news for the industry. But most segments have average check growth to thank for this. The only segment that was able to post positive 3-year same-store traffic growth during November was fine dining.
Based on their 3-year same-store sales growth, the segments that performed the best fell under the limited-service category: quick service and fast casual. These segments continue to be better positioned to generate demand from guests looking to moderate their spending when eating out.
As restaurant guests continue to face the challenge of inflation, even in a reduced capacity, their paychecks will not be able to carry them as far as they used to.
Staffing in restaurants may benefit from normalizing of labor market
The restaurant industry has been a primary casualty of the 2022 labor shortage — and guests haven’t been forgiving. Luckily, as staffing levels have gradually improved within recent months, customer satisfaction has turned a corner.
While the labor shortage is due in part by COVID-related dynamics, demographic issues, and newer trends, economists are still struggling to understand the bizarrely low rates of labor participation among Gen Z highlighted recently by The Wall Street Journal. The current landscape is expected to be an ongoing issue for restaurateurs.
Despite the aforementioned turbulence, there is steady improvement. The disparity between job openings and unemployment has eased since July—which recorded 11.2 million job openings but only 5.7 million unemployed workers. Full-service restaurants have also witnessed an increase in staffing levels.
Full-service restaurants nearing pre-COVID staffing levels
In October, front-of-house hourly staffing was down just 2% from October of 2019. This is a massive improvement considering March numbers were down 10% from its pre-pandemic counterpart.
When we assess the correlation between the Black Box Workforce and Guest Intelligence, we find a strong relationship between front-of-house hourly staffing levels and the guest sentiment captured through customer reviews. As staffing levels start to normalize, the average star rating of all reviews relating to the “attentiveness” of the staff has improved. The average star rating for reviews including language around attentiveness reached 3.7 in October compared to 3.5 in March and 3.3 in December of 2021, which produced even lower staffing numbers.
The correlation also exists between staffing levels and reviews that mentioned “short staffed” or “understaffed.” September and October saw the fewest numbers of guests complaining about staffing levels for all of 2022.
Staffing levels correlating to reviews mentioning attentiveness is likely a welcomed sanity check for frustrated managers trying to navigate their way through this peculiar time. However, this tidy narrative doesn’t cross over to limited service.
Staffing woes still trouble limited service
Limited-service sales volumes strengthened in the second half of the year, likely due to the inflationary environment driving higher demand for lower price points. Yet, staffing levels remain flat. Unlike full-service which saw a drastic staffing scale-up compared to 2021, nearing pre-pandemic levels, limited-service lags. October is down a whopping 12% from its 2019 figures.
However, there was not an apparent connection between staffing levels and mentions of “short staffed” or “understaffed.” While it is possible that staffing levels within limited service have a much weaker relationship with customer sentiment, a more plausible explanation can be found if we shift our focus to words relating to service “speed.”
These scores are noticeably lower for the second half of the year. Within this dataset, if we filter for reviews containing words relating to “line,” the average star rating for the second half of the year is noticeably lower than the first half and the mentions of “minute” or “wait” are higher. This is nearly a complete inverse of our observation of full-service staffing-related sentiment and plainly a result of the lack of staffing within limited service.
The cause for dissatisfaction may not be readily evident to customers at a limited-service restaurant. Guests may not be explicitly calling out staffing levels, but the result of being understaffed is the same and the reviews suffer nonetheless.