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November restaurant sales hint at longer-term recovery e_rasmus/iStock/Getty Images Plus

November restaurant sales hint at longer-term recovery

Off-premise sales drive growth amid positive outlook for holiday season, early 2019

The restaurant industry is closing out the year strong, driving optimism that the growing sales momentum seen through most of the year will carry into 2019.

Same-store sales were up 1 percent in November, which became the sixth consecutive month of positive sales growth for the industry. Excluding a very small dip in same-store sales during May, every month since March has posted positive same-store sales growth. This represents a period of expansion not experienced by the industry in over three years.

These insights come from TDn2K’s Black Box Intelligence data, based on weekly sales from more than 30,000 locations representing more than 170 brands and nearly $71 billion in annual sales.

“Although we have been excited to report on positive sales growth for most of the year, there was always the caveat of this only being a recovery from a short-term perspective,” said Victor Fernandez, vice president of insights and knowledge for TDn2K. “The industry’s sales were better than a year ago, but in reality, we were still negative compared with where we were two years prior.

“However, there is some encouraging news in the fact that, over the last two years, two months have posted same-store sales growth on a two-year basis,” he added. “Those two months were October and November of this year. What is perhaps more reassuring is that those two months were among the three strongest based on sales growth last year, meaning it’s not a matter of the industry jumping over some easy hurdles. We are starting to see some longer-term recovery in restaurant sales.” 

The missing link: Traffic growth

Since the recession, no matter how optimistic the message may be when discussing restaurant sales, the sobering counterargument to the industry experiencing real recovery has always come in the form of declining traffic. Same-store traffic was down 1.9 percent during November, which represented a small 0.3 percentage point improvement over October’s growth rate.

“Though chain restaurants as a whole are far from being able to solve their main problem of losing dining occasions to competitors outside the sector (independent restaurants, prepared food at grocery stores, convenience stores, etc.),” said Fernandez, “Black Box Intelligence data shows that those restaurant brands in the top quartile of performance have continuously achieved positive same-store traffic growth.

Economy poised for strong start to 2019

“The economy remains solid and, most importantly, wage gains are rising,” said Joel Naroff, president of Naroff Economic Advisors and TDn2K economist. “Though they still are not high, the tight labor market is forcing firms of all sizes, not just large ones, to raise salaries and hourly pay. That is sustaining consumer confidence and spending. It looks like the holiday season will be strong.”

While economic growth may moderate in 2019, it should remain solid, with further declines in unemployment rate and increases in worker income, he said.

“The real question is whether inflation accelerates,” he added. “With the savings rate continuing to fall, any jump in prices would limit demand. The outlook for restaurant sales is for it to remain solid through much of the first half of 2019, but growth is likely to decelerate as we go through the second half.”

Off-premise sales fuel growth

Though same-store sales have been strong in recent months from a top-line perspective, the location those restaurant meals are being consumed reveals some very important shifts in consumer behavior.

Dine-in same-store sales growth has actually been negative in recent months, but strong growth in to-go and other forms of off-premise sales have lifted the industry into positive growth. Furthermore, the growth in to-go sales has been accelerating rapidly. For 2018 year to date, it is approaching 9 percent year-over-year growth. As a comparison, to-go sales in comparable stores grew by less than 4 percent in each of the two previous years.

Consumers may be increasingly willing to buy their holiday-related meals from restaurants for consumption off-premise as well, Black Box data show. Same-store sales growth for to-go, catering and banquets all posted double digit growth during the week of Thanksgiving compared with that same holiday week a year ago. 

Workforce headaches persist

Guests are putting a premium on restaurants meeting their service expectations according to TDn2K’s White Box Social Intelligence. Moreover, it is in the consistency of execution that top performing brands thrive.

Unfortunately, many restaurants are discovering it is very difficult to deliver on these premises when they are continuously understaffed. Turnover for restaurant hourly employees and all levels of management increased again in October based on TDn2K’s People Report numbers. This increase falls on top of already historically high turnover rates.

Besides keeping up with these vacancies, restaurants also need to recruit for new restaurant openings. People Report data shows chain restaurant jobs grew by 1.8 percent during October, up from 1.7 percent recorded for September.

Companies need to answer the question: What will attract employees to work for us and become engaged contributors? The answer, according to the data, can usually be found in compensation, career development, work/life balance and culture. 

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 monthly. 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 43,000 restaurant units, 2.5 million employees and nearly $71 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, Texas.

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