Restaurant Industry Snapshot™ September, 2017

Signs of Improvement Emerge for Restaurant Sales Despite Second Worst Quarter In Over Five Years

Published

Comp Sales & Traffic

Comp Sales

-1.9%
rolling 3 months
-2.2%

Comp Traffic

-4.0%
rolling 3 months
-4.1%

Regional & Market Performance

Positive Markets 42 | 22% Negative Markets 153 | 78%

Strongest Region

California
  • Sales 0.6%
  • Traffic -2.2%

Weakest Region

Florida
  • Sales -6.2%
  • Traffic -8.8%

The Restaurant Workforce

job growth & turnover

Year/Year Job Growth*

0.0%
July
0.0%

Manager Turnover*

Q3 '17
Roll 12
Aug
YTD

Hourly Turnover*

Q3 '17
Roll 12
Aug
YTD
*People Report, Human Capital Intelligence, August, 2017 Release

Signs of Improvement Emerge for Restaurant Sales Despite Second Worst Quarter In Over Five Years

At first glance, results suggest 2017 third quarter performance was very disappointing for restaurant sales. Same-store sales declined -2.2 percent, a 1.2 percentage point drop from the second quarter. Restaurant same-store traffic fell -4.1 percent. Furthermore, the third quarter posted the second worst sales and traffic growth rates in over five years. The latest slump reignites fears that restaurant woes may be more severe than initially thought. These insights come from TDn2K™ data through The Restaurant Industry Snapshot™, based on weekly sales from nearly 30,000 restaurant units, 155+ brands and representing $68+ billion dollars in annual revenue. A deeper analysis reveals these latest results, though troubling, may not be as worrisome as they appear. “On one hand, the last three months were plagued by significant events that are external to the industry, but nevertheless had considerable negative impact on restaurant sales,” commented Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K. “Hurricanes Harvey and Irma affected millions of people in two of the country’s largest economies during the quarter. On the other hand, there were some signs of improvement throughout the quarter, especially when removing the effect of Texas and Florida on the national sales results.”

Good news: September sales showed improvement

Same-store sales growth for September was -1.9%, a small improvement from the -2.1 percent reported for August (which was also negatively impacted due to hurricane Harvey and the pay-per-view boxing match at the end of the month). However, September’s results also show a more significant jump from July’s -2.7 percent sales growth. The effect of the storms on restaurant sales was huge for the areas they hit. Texas reported same-store sales growth of -5.1 percent during August and Florida -6.2 percent during September. National same-store sales growth numbers would improve by about 0.2 percentage points for the third quarter if these two states are excluded from the sales growth calculations. Additionally, by excluding Texas and Florida the data reveals a bigger improvement in sales performance throughout the quarter. Same-store sales growth would go from -2.8 percent in July to -1.8 percent in August, and would improve to -1.4 percent by September. “Clearly, sales are still declining year-over-year,” said Fernandez, “but the rate at which they are falling has been decelerating. The trend is for improving results throughout the quarter once some of the external factors are isolated.”

Fine dining hit hard by storms

All industry segments experienced negative same-store sales growth in September. This is the second consecutive month that all segments have reported declining sales. The fine dining segment, which had been posting positive sales for most of the year has seen a decline since August. This segment, which has been hit particularly hard in Texas and Florida after the storms hit their coasts, was the weakest performing based on sales growth for the month. The best performing segments during September were family dining and upscale casual.

Increased consumer spending not likely to help restaurants

“The economy was hit by massive hurricanes in August and September. The chaos created also translated into volatile economic data,” explained Joel Naroff, President of Naroff Economic Advisors and TDn2K Economist. “For example, vehicle sales surged in September, largely due to the replacement of damaged vehicles. Consumer spending likely picked up, but not for the reasons we would hope for.” “Going forward, rebuilding efforts will also temporarily add to economic activity. Thus, third and fourth quarter growth will likely be good, but we could pay for it in the first part of 2018. Separating out the weather effects from trend economic growth, it appears that conditions have firmed a bit. That should be enough to trigger somewhat faster wage gains and spending, but don’t expect significant improvement in discretionary consumer purchases such as restaurants.”

Turnover rates increase again

According to TDn2K’s Q3 People Report Workforce Index™, operators continue to worry about finding enough qualified employees to staff their restaurants. Their expectation is that recruiting difficulties will continue in upcoming months. After plateauing for the last few months, turnover rates for both restaurant management and hourly employees increased again during August, surely a factor behind the growing concerns regarding restaurant staffing. This is not surprising given that the competition for available employees keeps rising as the labor market continues to tighten. The national unemployment rate dropped to 4.2 percent in September and is the lowest it's been in almost seventeen years. “The correlation between unemployment and restaurant turnover, especially for hourly employees, has been well documented by People Report™,” stated Fernandez. “But regional factors also come into play. For example, Kentucky and Mississippi, which are among the states with the highest restaurant hourly turnover rates in the country, both have unemployment rates around 5.3 percent, well above the national number.” The battle for market share is fought at the local level. Service, value and lower turnover rates are key differentiators in today’s market. Brands that consistently deliver on these attributes are better positioned to deliver above-market performance.