Topline numbers show robust restaurant sales growth during November, largely due to a favorable shift in the Thanksgiving holiday. Same-store sales growth was 1.6% in November, which represents the third consecutive month of positive sales growth and the strongest since January.
But on closer inspection, the news is less positive. The holiday shift that boosted November’s growth also set the stage for a weak December.
These results come from Black Box Intelligence data from TDn2K, based on weekly sales from over 31,000 restaurants representing $72 billion in annual sales.
Since Thanksgiving fell late in November this year, the holiday was considered as occurring in December, according to Black Box Intelligence’s reporting convention. Thanksgiving typically represents lower sales volumes for most industry segments. While restaurant sales were lower for November of 2018, November of 2019 did not include the same holiday headwinds. This effect will be reversed in December, which is expected to be weak from a same-store sales perspective.
“To better understand November, we need to look at what happened during the first three weeks of the month,'' said Victor Fernandez, vice president of insights and knowledge at TDn2K. “Two of the first three weeks of the month had negative same-store sales. Additionally, the month-to-date growth rate by the end of the third week was -0.3%. But comparing a regular week to Thanksgiving week last year meant the fourth week of the month had positive same-store sales growth in the double digits, which was enough to elevate the month’s overall growth rate by almost two percentage points.”
Favorable holiday shift not enough to grow traffic
Despite the favorable Thanksgiving comparison this year and the fact that same-store traffic also achieved double-digit growth during the last week of the month as a result, the industry continued losing guests at an accelerated pace. Same-store traffic for the month was down 0.9%. Even though overall this is the best month since January, the 3.1% traffic decline seen in the first three weeks of the month provides a clearer view of November’s performance.
Fine-dining and family-dining hurt most by holiday shift
The best-performing segments during November were those whose sales are the most negatively affected by Thanksgiving: fast casual, upscale casual and casual dining. In the case of most of the concepts in these segments, Thanksgiving means significantly less traffic and even closed locations as consumers gather at home for meals with friends and family.
But for other segments, namely fine dining and family dining, this holiday often brings an increase in sales as many families travel, gather and celebrate by dining out. For these segments, the delay in the holiday meant underwhelming same-store sales performance during November and especially during the last week of the month. Both of these segments are likely to offset these results with strong same-store sales growth in December.
Soft income growth and increased holiday shopping equal flat restaurant demand
“With trade pressures easing, economic growth has begun to stabilize at the expected modest to moderate 2% pace,'' said Joel Naroff, president of Naroff Economic Advisors and TDn2K economist. “So far, fourth-quarter data has been disappointing and while online Black Friday sales were strong, brick-and-mortar activity fell sharply. With consumers making more purchases from home, a trend that shows no signs of lessening, eating out is likely to be limited.”
Naroff added: “The more moderate pace of consumption implies the softening in hiring and income growth should continue. That is likely to be the case even if a so-called ‘phase one’ China trade agreement is signed sometime over the next few months. It eases tensions but doesn’t significantly change the economic fundamentals. And it isn’t certain an agreement will happen. Consequently, expect household spending to expand moderately at best over the next six months, assuming a modest trade agreement. That means restaurant demand is likely to be largely flat.”
Industry growth adds to mounting staffing and retention pressures
Restaurants continue to face significant staffing pressures. Finding and retaining employees are among the biggest obstacles operators struggle with. The problem lies in part in the fact that, while unemployment remains at the lowest levels experienced in the last fifty years, chain restaurants continue to expand and add to their number of locations. Net growth in number of chain restaurant locations was 1.6% year over year according to Black Box Intelligence’s Market Share Report. Restaurants have had to keep up with this growth from a staffing standpoint amid the most difficult labor market in decades.
Additionally, turnover rates for restaurant employees and managers continue to be at all-time highs. In the case of the hourly crew, turnover increased slightly in October after a small drop in September. It seems the industry has reached its ceiling in terms of hourly employee turnover and is now moderating. The relentless climb in turnover rates may be over, but considerable easing of turnover pressures are not expected considering the tight job market.
The story is similar for restaurant managers. We have now experienced three consecutive months in which management turnover has alternated between rising and decreasing, also suggesting it is stabilizing at its current levels.
There’s good reasons to be pessimistic about same-store sales growth for restaurants in December. First, at 2.1% sales growth, December 2018 was tied for the strongest month last year, which means a tough comparison as we wrap up the year. Second, the shift of Thanksgiving into December of 2019 converts from tailwind to headwind this month. Expect the casual dining, upscale casual and fine dining segments to have abysmal sales and traffic results.
Tough year-over-year comparisons and a softening economy carry over into next year, which means a significant lift in restaurant spending is unlikely.
From a workforce standpoint as long as the economy keeps growing (even if at a slower pace) and labor markets remain tight, restaurant operators will continue to struggle with finding and keeping enough qualified employees in the new year.
TDn2K (Transforming Data into Knowledge) is the leading insights & knowledge provider of restaurant industry human resources, financial performance and consumer insights data through their products People Report™, Black Box Intelligence™, White Box Social Intelligence™ & Consumer Intelligence. TDn2K allows organizations to leverage benchmarked data to achieve best-in-class performance results. TDn2K currently tracks, analyzes and benchmarks the largest database of real restaurant data in the US that includes over 300 companies, over 2.8 million employees and $72 billion in annual revenue. TDn2K also produces the Global Best Practices Conference held annually each January in Dallas, Texas.