Restaurant Industry Snapshot™ November, 2016

Restaurant Sales Growth Worst Since July; Job Growth Disappears

Published

Comp Sales & Traffic

Comp Sales

-1.3%
rolling 3 months
-0.9%

Comp Traffic

-3.3%
rolling 3 months
-3.3%

At -1.3 percent, disappointing restaurant sales growth in November was the ninth consecutive month of negative same-store sales; and the worst sales growth since July. Despite the economy growing at the fastest pace in two years during the second quarter, this growth did not translate into incremental sales for the industry. Same-store sales for third and fourth quarters, at the end of November, are both -1.1 percent. This insight comes from data reported by TDn2K™ through The Restaurant Industry Snapshot™, based on weekly sales from nearly 26,000 restaurant units and 130+ brands, representing $65 billion dollars in annual revenue.

Traffic continues to be the main factor as sales trend downward. As of November, same-store traffic growth for 2016 has declined -3.0 percent. In contrast, traffic in 2015 was down -0.8 percent. The -3.3 percent drop in November was only a marginal improvement from the -3.4 percent decline reported for October.

Even though traffic performance was very close to prior month, sales growth deteriorated due to a drop in average guest checks. Same-store average guest check growth was 2.1 percent during November. It had been over 2.5 percent for all months since June.

“The economy expanded solidly over the summer and it looks like it picked up some steam in the fall. Given the lack of qualified workers, job gains were as good as could be expected and the unemployment rate dropped to its lowest level since August 2007,” commented Joel Naroff, President of Naroff Economic Advisors and TDn2K economist. “Consumer income growth improved as a result. Household spending on retail products, including restaurants, is not keeping pace. Families are buying vehicles and homes and debt payments are limiting spending on other products. Trump’s tax and spending proposals should add to growth, but not until the second half of next year. The outlook is for income gains to improve and spending to rise, but the changing spending patterns should continue until the rising interest rates slow big-ticket consumer purchases. That may not happen until well into 2017.”

“As weak as November’s results were, the month was affected favorably by the shift in Halloween,” expressed Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K. “According to our reporting calendar, this holiday fell on a Monday during the first week of November in 2016, while it was on a Saturday in 2015. When calculating the sales growth, sales lost on a Saturday night would greatly outweigh those of a Monday night. The impact of this shift would be amplified in those segments that rely heavily on the dinner daypart, such as upscale casual and fine dining”

Segment Performance

Reporting comparable store sales performance close to 2.0 percent, quick service was again the best performing segment. QSR has been the top performer during every month since February. The only other two segments with positive sales in November were family dining and fine dining.

“Even if some segments are doing better than others, sales growth is slowing down across the board,” said Fernandez. “At the end of November, same-store sales quarter-to-date are lower than fourth quarter 2015 in all segments, with the exception of family dining. Even that segment is 2.3 percentage points lower than it was two years ago.”

Check Average

One of the main challenges restaurants have faced this year has been menu prices increasing at a much faster rate than the prices for food at grocery stores. This has created additional competitive pressures for restaurants, as preparing food at home became much more attractive from a cost perspective.

According to a recent survey conducted by Black Box Intelligence, menu prices increased by an average 1.9 percent for counter service brands and 1.8 percent for table service brands during 2016. The expected increase for 2017 is lower, with price increases estimated to be around 1.7 percent for both.

In contrast, government numbers show food at home prices dropping by an average 1.2 percent year-over-year during the first ten months of 2016.

Furthermore, the study revealed that for 57 percent of the companies included in the sample, total average guest check increases outpaced their increases in menu prices by an average 1.4 percent. This indicates that most of the brands represented are experiencing incremental spending from consumers beyond what can be directly attributed to changes in their prices.

The Restaurant Industry Workforce

According to Fernandez, “Throughout 2016, we have seen restaurant job growth slow down along with restaurant sales. After creating jobs at an average rate of 3.7 percent during the first seven months of the year, restaurant job growth slowed down, finally reaching 0.0 percent during October. We might start seeing the industry’s workforce shrinking year-over-year in the near future as brands seek to boost productivity by labor force reduction in response to decreasing sales and rising labor costs.”

Meanwhile, according to People Report, turnover rates for both restaurant managers and hourly employees continued to increase.

The Western* and Mountain Plains** regions experienced the biggest increase in hourly turnover for counter service companies during the third quarter. For table service companies, New England*** suffered the biggest increase in hourly turnover, increasing by 16% compared to the previous quarter.

* Western: Alaska, Arizona, Hawaii, Idaho, Nevada, Oregon, Washington
** Mountain Plains: Colorado, Kansas, Missouri, Montana, Utah, Wyoming
*** New England: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont

Regional & Market Performance

Positive Markets 53 | 27% Negative Markets 142 | 73%

Strongest Region

California
  • Sales 0.0%%
  • Traffic -3.1%

Weakest Region

Texas
  • Sales -3.6%%
  • Traffic -4.9%

The Restaurant Workforce

job growth & turnover

Year/Year Job Growth*

0.0%
September
0.3%

Manager Turnover*

Q4 '16
Roll 12
Oct
YTD

Hourly Turnover*

Q4 '16
Roll 12
Oct
YTD
*People Report, Human Capital Intelligence, October, 2016 Release