Restaurant Industry Snapshot™ May, 2017

Labor Pressures Build While Restaurant Sales Continue to Decline

Published

Comp Sales & Traffic

Comp Sales

-1.1%
rolling 3 months
-1.0%

Comp Traffic

-3.0%
rolling 3 months
-3.2%

Regional & Market Performance

Positive Markets 56 | 29% Negative Markets 140 | 71%

Strongest Region

Florida
  • Sales 0.1%
  • Traffic -1.9%

Weakest Region

Texas
  • Sales -2.4%
  • Traffic -4.3%

The Restaurant Workforce

job growth & turnover

Year/Year Job Growth*

1.9%
March
1.5%

Manager Turnover*

Q2 '17
Roll 12
Apr
YTD

Hourly Turnover*

Q2 '17
Roll 12
Apr
YTD
*People Report, Human Capital Intelligence, April, 2017 Release
May was a disappointing month for chain restaurants by most measures. Same-store sales were down -1.1 percent, which represents a 0.1 percentage point drop from April. The industry has not reported a month of positive sales since February of 2016. These results come from data by TDn2K™ through The Restaurant Industry Snapshot™, based on weekly sales from over 27,000+ restaurant units, 155+ brands and representing $67 billion dollars in annual revenue. Same-store traffic growth was -3.0 percent in May, a 0.2 percentage point improvement from April. Although traffic results improved from prior month, the growth in check average was lower than it has been in recent months, causing the fall in sales growth vs. March and April. “The industry is clearly still struggling, but there is some optimism based on the latest results,” expressed Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K. “Both sales and traffic growth quarter-to-date at the end of May show improvements over the first quarter and the second quarter is currently on track to post the best results we’ve seen for the industry since the third quarter of 2016.” “Additionally, restaurant sales were relatively soft last year, and the easier comps should help results” he continued. “However, at this point, we believe the most likely scenario for the current quarter will be an improvement over recent quarters, while still suffering negative sales given the current consumer spending trends”.

Slow Economic Growth & Consumer Spending

“With little happening in Washington to alter the landscape for growth, it appears as if the economy will again expand this year at the same pace it has averaged for the past seven years, which is 2.2 percent,” explained Joel Naroff, President of Naroff Economic Advisors and TDn2K Economist. That is enough to continue driving down unemployment rates and putting greater pressure on firms trying to expand and hire new workers. Wage gains are still accelerating slowly, though, limiting household spending power. Recently, there has been an upturn in retail spending on most goods and services. That stands in stark contrast to the continued decline in sales growth at restaurants. Consumers appear to be maintaining their spending at restaurants but increasing it for other goods and services. This change in consumer spending patterns was identified about a year ago and how much longer it will continue is unclear.

Catering, Delivery & Drive-Thru: Opportunities for Growth

While overall sales continue to be a challenge for most of the industry, there are pockets of opportunity that some brands have capitalized on to boost performance. Dine-in sales have been negative year-to-date, but to-go is up 2.9 percent. Sales are also up in catering, delivery and drive-thru. From a day part perspective, breakfast and mid-afternoon sales offer continued opportunities for growth, while lunch and, especially, dinner sales continue to stumble.

Industry Segment Performance

May sales were weak across all segments. Only the fine dining segment was able to achieve very small positive same-store sales growth during the month. The second best performing segment during May was quick service. That soft performance notwithstanding, the best performing segments continue to be those with the lowest and highest average guest checks. “Dining experience on one end and value and convenience on the other seem to continue to be key components of restaurant sales performance based on current consumer spending trends,” said Fernandez. The weakest performing segment in May was casual dining. This was a bit unexpected since the segment showed improved performance during the first four months of 2017 after lagging the industry for several years. Casual dining has added a modest number of new units, but same-store sales declines have contributed to its overall loss in market share. Despite weak sales results year-to-date, fast casual continues to win the market share battle. It gained the most share in the first quarter of 2017 compared with the same quarter a year ago. Aggressive expansion has driven total sales growth, but increased competition and market build-out have undoubtedly impacted same-store sales for the segment. The only other segment that gained market share year-over-year was quick service.

Retention and Staffing Still Plaguing Restaurants

In addition to what they are facing in terms of falling guest counts and consumer spending, strong challenges continue to confront restaurants in both staffing and retaining enough qualified workers. TDn2K’s People Report Workforce Index™ continues to indicate that restaurant operators are pessimistic regarding the difficulty of recruiting in the upcoming quarters. Part of the problem is that hiring for new restaurant positions has started to pick up again. The number of employees in the chain restaurant sector increased by 1.9 percent during April compared with a year ago, up from 1.5 percent growth recorded in March. The other issue affecting staffing is rising turnover. Turnover rates for both hourly employees and management staff increased again during April. “The turnover numbers that we are reporting are stunning”, said Joni Thomas Doolin, TDn2K CEO and founder of People Report™. “Many of the brands that we track are already facing unsustainable levels of staffing vacancies. Most alarming is the fact that over 70% of employees are leaving voluntarily as opportunities for better work increase”. Meanwhile the overall labor market nearing full employment doesn’t hint at relief for operators any time soon. The consequences of turnover are well documented by TDn2K. Not only does it impact service levels and guest satisfaction, which correlate to traffic and sales, but it is also a huge source of additional costs hurting the bottom line. According to a recent study by People Report, it costs on average about $2,200 to replace a single restaurant hourly employee, while the cost of turnover for all levels of restaurant management is on average about $15,000 per manager. “The companies who are leading in the marketplace are starting by winning in the workplace. Being a great employer has never been more important,” stressed Doolin.