Restaurant Sales Disappoint in Q1

This first quarter of 2017 seems to be consistent with 2016 as the industry chugs along and the rest of the economy gradually improves.

April 18, 2017

DALLAS – Restaurant struggles continued in March as sales and traffic again declined year-over-year, reports TDn2K. Same-store sales were down 1.1%, while traffic dropped 3.4%. March’s results were disappointing for an industry desperately trying to reverse performance trends; sales have been negative in 11 out of the last 12 months.

However, the restaurant industry analytics firm says that March did represent an improvement. Although still negative, sales improved by 2.5 percentage points compared to February. Traffic also improved by 1.6 percentage points. This insight comes from TDn2K’s Restaurant Industry Snapshot, based on weekly sales from more than 26,000 restaurant units and 145+ brands, representing $66 billion dollars in annual revenue.

“March sales were expected to be somewhat better than February due in part to the catch-up of tax refunds that were initially delayed in February,” commented Victor Fernandez, executive director of insights and knowledge for TDn2K. “In addition, the industry likely benefitted from the shift in the Easter holiday, which fell in March 2016. For the largest segments (quick service and casual dining), this holiday represents a potential loss of sales.”

Fernandez continued: “The fact that sales were still negative in March given these tailwinds highlights the challenge chains have faced since the recession. Factors like restaurant oversupply and additional competition for dining occasions continue to take their toll on chain traffic.”

Quarterly Results
With same-store sales declining 1.6%, the first quarter of 2017 was the fifth consecutive quarter of negative results. The last time the industry experienced a similar period was in 2009 and the first half of 2010, as the economy began recovery following the recession. Furthermore, the first quarter of 2017 followed a very disappointing 2.4% sales drop in the fourth quarter of 2016, highlighting the difficult operating environment currently facing many operators.

Same-store traffic in the first quarter was also consistent with the average 3.4% quarterly declines experienced since the beginning of 2016.

Average Guest Checks
The growth rate in check average continues to trend down slowly. For the first quarter of 2017, the average check was up 1.9%, somewhat lower than the average 2.3% growth reported for 2016. This is likely the result of brands relying more on promotions and conservative menu price increases in response to continual declines in traffic.

As has been the case in recent quarters, segments with the highest and lowest average check experienced better results. The strongest performance in the first quarter came from upscale casual, followed by fine dining and quick service.

Despite continual sales slippage, there appears to be some positive news for casual dining. In 2015 and 2016, the segment trailed industry averages by roughly 0.7 percentage points. Although still negative, that gap to industry was only -0.1 percentage point in the first quarter. Casual dining has outperformed industry results in six of the past eight weeks. Conversely, over that same eight-week span, fast casual has trailed industry benchmarks six times.

The Workforce
Finding enough qualified employees to keep restaurants fully staffed persists as a primary concern for restaurant operators. This is mainly due to restaurant turnover rates continuing to skyrocket while the labor market is at or near full employment. Turnover for restaurant hourly employees as well as managers increased again during February. These rates are currently higher than they have been in over 10 years and rising.

Restaurant brands are finding they need to offer a compelling reason for why employees should leave their current employment and come work for them.

Even if wages have been increasing slowly in recent years, this is expected to change soon as the labor market continues to tighten. In fact, about 80% of restaurant companies reported having to offer additional financial incentives to attract candidates in tough recruiting markets. In almost all cases, those incentives take the form of higher base pay.

Restaurant job growth year-over-year has been slowing down in recent months and is now negative, likely a combination of the pace of new restaurant openings also slowing and staffing levels decreasing due to labor market challenges as well as conscious decisions to control costs. About 60% of restaurant brands tracked reported lower employee counts during February of 2017 than a year ago. This may not be good news for service scores and guest satisfaction.

This first quarter of 2017 seems to be consistent with 2016 as the industry chugs along and the rest of the economy gradually improves. “First quarter results would say that we are not winning our share so far this year. Our research does show there are real winners with impressive results. Brands investing in the customer experience and the employee experience with technology and staff development are stealing share to grow their businesses,” said Wallace Doolin, chairman and founder of TDn2K.

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