Restaurant Industry Snapshot™ May, 2018

Restaurants Lose Some Sales Momentum in May, But Marginal Improvements Continue

Published

Watch a short video commentary on this month's snapshot from Gerret Montgomery, Director of Business Analytics & Operations.

Comp Sales & Traffic

Comp Sales

0.0%
rolling 3 months
0.8%

Comp Traffic

-2.9%
rolling 3 months
-2.1%

May’s flat same-store sales growth provided some evidence of the industry’s relative recovery, even if it also represented a significant slowdown in its sales growth compared with April’s results. Restaurants have now experienced three consecutive months with positive or flat same-store sales growth. Same-store sales growth year-to-date has also been positive, which is welcome news for an industry that saw its sales decline by 1.0 percent during each of the previous two years. The biggest challenge for the industry continues to be the declining guest counts year-over-year. Same-store traffic declined by 2.9 percent during May. In fact, it is rising restaurant guest checks that have been pushing sales into positive growth territory, amid an environment of persistent declining guest counts.

Regional & Market Performance

Positive Markets 87 | 44% Negative Markets 109 | 56%

Strongest Region

Western
  • Sales 2.8%
  • Traffic -0.9%

Weakest Region

New England
  • Sales -2.4%
  • Traffic -5.1%

Not only were May’s same-store sales results underwhelming when compared with the previous two months, they also revealed that at the local level there are still significant challenges for the restaurant industry. Sales may have been flat year-over-year at the national level, but 109 (56 percent) of the196 DMAs currently tracked by Black Box Intelligence reported negative same-store sales during May. Furthermore, only five of the eleven regions of the country achieved positive same-store sales growth during May. Best performing regions based on sales growth were the Western region, Florida, and California (tracked separately from the rest of the western states). The regions with the worst sales growth results were the Mid-Atlantic, Midwest, and New England.

The Restaurant Workforce

job growth & turnover

Year/Year Job Growth*

-0.8%
March
1.8%

Manager Turnover*

Q2 '18
Roll 12
Apr
YTD

Hourly Turnover*

Q2 '18
Roll 12
Apr
YTD
*People Report, Human Capital Intelligence, April, 2018 Release

Staffing challenges continued to escalate for restaurants during May. The latest headlines highlight the fact that at 3.8 percent, the national unemployment rate is at the lowest level its been in the last fifty years. Additionally, TDn2K’s People Report latest numbers showed turnover rates rising again for both restaurant hourly employees and restaurant managers. The shortage for qualified talent is becoming a significant obstacle for operators, who have reported their restaurants are constantly understaffed.

 

Restaurants Lose Some Sales Momentum in May, But Marginal Improvements Continue

Restaurant sales growth slowed in May, losing some of the momentum that carried the industry into positive same-store sales growth territory the last two months. However, for an industry that has struggled the last two years with declining same-store sales, May’s flat results (0 percent growth year over year) can still be considered encouraging news that continues to point to a restaurant recovery in relative terms. These insights come from TDn2K’s Black Box Intelligence™ data through The Restaurant Industry Snapshot™, based on weekly sales from over 30,000 restaurant units, 170+ brands and represent over $69 billion dollars in annual revenue. “There are two takeaways from May’s flat performance,” said Victor Fernandez, vice president of insights and knowledge for TDn2K™. “First, the stronger economy is lifting restaurant spending and 2018 should be better than the last two years. Same-store sales growth year-to-date is at 0.3 percent at the end of May, compared with -1.0 percent for both 2016 and 2017. Secondly, the fact that same-store sales growth dropped by 1.5 percentage points compared with April’s rate highlights the fact that the underlying challenges remain. It will be very hard for chain restaurant sales to rise beyond very modest positive gains. Those challenges include the oversupply of restaurants and the fierce competition from other sectors like grocery store prepared foods, convenience stores and even independent restaurants.” One metric that has highlighted restaurant challenges since the recession is the continued erosion in traffic. Same-store traffic dipped -2.9 percent in May, which also represented a 1.5 percent fall from April’s growth rate. Even with this negative result, there is some room for guarded optimism. Traffic growth year-to-date currently stands at -2.5 percent, which is a modest step up from the -3.2 percent recorded for each of the previous two years.  

Consumer and Business Spending Increasing, But Income Gains Still Sluggish

“The economy appears to have accelerated in the second quarter from its mediocre performance in the first part of the year,” stated Joel Naroff, president of Naroff Economic Advisors and TDn2K economist. “Consumer spending, which grew decently in the first quarter, has picked up further as the tax cuts added to household spending power. Business investment activity has also increased, though we are still not seeing as much of the tax benefits going to new spending on buildings, machinery or software as hoped for. That is just one of the two concerns facing the economy. The second is wage gains, which may be accelerating, but so is inflation and that means spending power continues to expand sluggishly. The expected stronger economy is coming and we could see growth in the next two quarters at or above 3.0 percent. But there is still little reason to believe that the improvement will be powered by sharp gains in consumer spending. Thus, look for restaurant sales to rise a bit further,” said Naroff.  

Guests Are Spending More Per Restaurant Visit

Another sign of the economy’s strength and improved consumer optimism is the fact that average spending has accelerated in recent quarters. For 2018, average guest checks are up 2.8 percent. By comparison, checks grew 2.1 percent in 2017. “To put all this into perspective,” continued Fernandez, “guests are spending more per visit but dining out less frequently. If it wasn’t for the growth in check average, we wouldn’t have seen any positive sales growth since the recession.”

Fast Casual’s Resurgence Continues, Upscale Dining Continues to Lead

The top performing segments based on same-store sales growth during May were fast casual, upscale casual and fine dining. The latter segments led the industry in sales during 2017 and continue to experience positive results in 2018. Fast casual, however, takes the prize for most improved. After two years of declining sales, which followed years of dominating the marketplace as the top performing segment, fast casual is experiencing a resurgence in 2018. The segment’s growth results have improved by 2 percentage points from their 2017 rate. By comparison, the other segments have only improved their sales results by an average 0.5 percentage points compared with the previous year.  

Growth Opportunities Lie Beyond Lunch or Dinner

The weakest daypart year-to-date is dinner, with only 0.1 percent growth. For many brands, particularly those in full service, dinner is the biggest and, in some cases, only daypart. Lunch sales are also struggling and traffic in that daypart continues to decline. So where are restaurants finding success in driving incremental sales? The good news is that it is happening in all other dayparts. Sales in the mid-afternoon (after lunch and before the dinner rush), late night (after dinner) and at breakfast have each grown over 1.0 percent or more in 2018. At the same time, off-premise sales are also rising, reinforcing the trend of consumers spending relatively less for traditional in-unit dining experiences.  

The Restaurant Workforce

There is no doubt that one of the biggest challenges restaurants are facing is finding enough qualified employees to run their restaurants. The latest results published by TDn2K’s People Report™ indicate things are not getting any easier. Restaurant turnover is currently the highest it has been in decades. Compounding the problem, turnover for both restaurant hourly employees as well as restaurant management inched up again in April on a rolling 12-month basis. “This is to be expected,” said Fernandez, “considering that the national unemployment rate is now as low as it has been in the last 50 years. Furthermore, in 1969, restaurants were not up against companies like Uber or GrubHub when competing for employees. People Report data shows currently over 75 percent of restaurant companies are constantly understaffed.” So what can companies do to improve their retention? The recent People Report Recruiting & Turnover survey revealed that the most successful strategies to reduce turnover at the hourly and management level focus on three specific areas: compensation adjustments, improving engagement in restaurant managers and providing more training to all levels of employees. 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 over $69 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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