This exclusive series to Nation's Restaurant News provides insight into the sales and traffic data from clients subscribing to Black Box Intelligence, a financial performance benchmarking company. The views expressed here do not necessarily reflect those of Nation's Restaurant News.
Same-store sales disappointed again in August, declining 2 percent, with traffic dropping 3.9 percent. Still, both measures were 0.7 percentage points higher than results in July.
The results reflect the difficult environment many restaurant chains face in today’s rapidly changing market. However, the industry’s underlying performance was actually stronger than the topline numbers suggest. These insights come from TDn2K data through The Restaurant Industry Snapshot, based on weekly sales from more than 28,500 restaurant units, over 155 brands and representing more than $68 billion dollars in annual revenue.
“August is really a tale of two different periods,” said Victor Fernandez, executive director of insights and knowledge for TDn2K. “In the first three weeks of the month, same-store sales were down 1.4 percent, a significant 1.4-percentage-point improvement over July. Same-store traffic was down 3 percent. Although still negative, this was an improvement over recent results.”
Results in the last week of August were particularly weak due to Hurricane Harvey. Same-store sales in Texas fell 15 percent that week, almost 13 percentage points below the average the rest of the month.
Given the large population and size of the Texan economy, lost sales in the region can impact national results. Texas’ performance lowered the national sales results by more than 1 percentage point in the last week of August, and pushed results down 0.3 percentage points for the entire month. The negative effects from the storm are expected to continue for months.
Another significant event was the Mayweather-McGregor boxing match on the final Saturday of the month. With an estimated 4.5 million pay-per-views at about $100 each, the spectacle had roughly a $450 million impact on that single evening. Millions of potential restaurant customers modified their plans because of the event. Bar-and-grill concepts, which often feature sports and specials in their bars, saw sales improve for the week. Full-service segments with less emphasis on sports and televised events, namely fine dining and upscale casual, saw a severe negative impact.
Consumer spending stalls
While the economy grew moderately in the summer, a hoped-for acceleration didn’t pan out. Additionally, job growth was moderate, but compared with the first eight months of 2016, the number of jobs added each month was about 10,000 positions lower. Correspondingly, income has increased only modestly, and especially so when adjusted for inflation.
“Consumer spending power remains limited, and that is restraining retail sales, especially at restaurants,” said Joel Naroff, president of Naroff Economic Advisors and TDn2K economist. “The impact of hurricane Harvey, and potentially Irma, are large enough to slow growth in the third quarter. But the rebuilding should kick in during the fourth quarter and cause activity to reaccelerate.”
The recent storms will impact data over the next few months, and represent only short-term trends.
“We may not get back to more normal growth until early 2018, but that is still expected to be same roughly 2.25-percent pace we have seen for the past six years,” Naroff said.
Limited service still wins
TDn2K’s latest “Market Share and Industry Growth Report” indicated that quick service and fast casual continued to gain market share through the second quarter.
The latter segment has faced significant same-store sales challenges recently due to restaurant oversupply and chains flooding the market, but from a total sales perspective, fast casual is still experiencing considerable growth.
Family dining and, to a larger extent, casual dining continue to lose share. Not only is casual dining experiencing a continued sales decline, but net location growth has remained flat over the last few quarters.
Turnover rates stabilize, but remain at historic highs
Finding enough qualified employees continues to be top-of-mind for operators.
Staffing difficulties are at decade-high levels, according to TDn2K’s People Report Workforce Index. However, the trend of rising turnover rates may be moderating. The unemployment rate is hovering around full-employment levels, and restaurant turnover rates also seem to be plateauing.
In July, rolling 12-month turnover rates for hourly and management employees remained at the same levels as the previous month. This is clearly good news, which is still bad news. The turnover rate may be stabilizing, but is still at historically high levels, and is a key factor in delivering consistent quality at the unit level.
The outlook for September and the fourth quarter is uncertain. Even without major external factors, restaurant chains have not yet demonstrated an ability to consistently generate sales and traffic momentum.
Texas, Louisiana and Florida will likely experience significant shortfalls due to devastating weather events. And the rise in gasoline prices, often considered an indicator of restaurant traffic, will be watched closely.
In general, operators will rely on relatively strong economic conditions and favorable comparisons against a weak prior year to turn the tide for the balance of 2017.
TDn2K (Transforming Data into Knowledge) is the parent company of People Report, Black Box Intelligence and White Box Social Intelligence. People Report provides service-sector human capital and workforce analytics for its members on a monthly basis. Black Box Intelligence provides weekly financial and market level data for the restaurant industry. White Box Social Intelligence delivers consumer insights and reveals online brand health. TDn2K membership represents 41,000 restaurant units, 2.5 million employees and $68 billion in sales. They are also the producers of leading restaurant industry events including the Global Best Practices Conference held annually each January in Dallas.