The upward momentum in restaurant sales halted again during April. Same-store sales were down 0.4%, meaning sales growth has now been negative during two of the last three months. Although these results were undoubtedly disappointing for restaurant operators, it is too soon to start worrying about a true downturn for the industry.
These insights come from Black Box Intelligence™ data from TDn2K™, based on weekly sales from over 31,000 locations representing more than 170 brands and nearly $72 billion in annual sales.
“April was a soft month for restaurants. Putting these results in context helps us remain cautiously optimistic about the current state of the industry,” said Victor Fernandez, vice president of insights and knowledge for TDn2K. “First, the industry was lapping over one of the strongest months in same-store sales growth last year. When taking in a longer-term view of sales, the two-year growth rate of 0.9% during April still reflects a growing industry.”
Furthermore, Fernandez added, every months since October of 2018, with the exception of February which was plagued by extremely bad weather, have reported positive same-store sales growth when compared with the same month two years ago. By comparison, the average for two-year sales growth during the previous twelve months was -1.6%, he said.
April also was negatively impacted by the Easter holiday. This holiday translates into decreased restaurant visits for many brands and in some cases, closed restaurants. This year Easter was celebrated in April but in 2018 it fell in March. As a result, same-store sales approached a 2% decline during the week of Easter. This negative sales growth was the worst for the industry since the last week of February when winter storms severely hurt sales in large portions of the country.
Declining visits still the norm, but check growth accelerates
Same-store traffic during April was down 3.5%, a decline of 1.6 percentage points from March. However, the Easter effect also needs to be taken into consideration for traffic. The third week in April also experienced the worst traffic numbers since the end of February. The holiday shift aided March’s guest counts but negatively impacted April’s.
These poor traffic results again highlight how restaurants continue to rely on their guests spending more per visit to try to grow their sales. Average guest check growth has been accelerating since the fourth quarter of last year. This is likely a result of restaurant brands raising their menu prices at a faster pace and a favorable shift in product mix driven by a more confident consumer.
Fine-dining and family-dining favored by Easter shift
Fine dining and family dining were the two best performing segments in April, based on same-store sales growth. These segments were also the most favored by their incremental Easter sales. Quick service was the only other segment that achieved positive growth during the month, despite a soft Easter week.
Consumer Spending Softened, Positive Economic Outlook Remains for Restaurants
“Despite what looked like a strong first quarter expansion in the economy, there were some warnings in the latest GDP report,” commented Joel Naroff, president of Naroff Economic Advisors and TDn2K economist. “Most importantly, the growth in consumer spending was the weakest in four years. There has also been a decline in the year-over-year growth in retail sales at restaurants. Is this softening worrisome? Maybe not. Incomes are still expanding moderately, consumer confidence is high and job gains remain strong.”
“What is likely happening is the rebound in demand that began in 2018 and accelerated this year, is simply moving back toward sustainable levels,” he added.
“Barring an all-out trade war, the economy should continue growing solidly the rest of the year. As labor markets tighten further, wage gains and household demand should pick up. Indeed, the only dark cloud is the elongated poor weather patterns that have restrained typical spring spending patterns. If we assume normal summer conditions, restaurant sales should accelerate.”
Rising employee vacancies pose a threat
Employee staffing issues give restaurant operators little reason to celebrate. TDn2K studies continue to feature service as the one consistent differentiator for top performing brands based on sales growth. Even if other attributes of the restaurant experience, such as food and ambience, have fluctuated in relative importance, superior execution on service remains at the heart of what successful restaurant brands do consistently.
Yet, most companies are facing the toughest challenges in their history when it comes to staffing their restaurants, unquestionably at the cost of subpar service levels. According to TDn2K’s Workforce Index, vacancies have increased at a relatively consistent rate over the past several quarters as the number of unfilled unit level positions across restaurants escalates. During the first quarter of 2019, 35% of companies reported an increase in their unfilled management positions, while only 12% were able to reduce their vacancies. 38% of companies had an increase in their unfilled hourly employee positions and only 10% of them made any progress reducing their vacancies.
The drivers behind these staffing difficulties continued their pressure on the industry during March. Rolling 12-month turnover for both restaurant hourly employees and managers increased again, adding to the already historically high turnover rates experienced by the industry in recent quarters. Additionally, the industry continues to create new jobs that need to be filled at a rapid pace. Year-over-year growth in the number of restaurant employees grew by 2.7% during March, an uptick from the 2.6% growth rate reported for February.
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™ and White Box Social 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 300 companies, 2.6 million employees and nearly $72 billion in annual revenue. TDn2K also produces the Global Best Practices Conference held annually each January in Dallas, Texas.