Let’s turn to the present
BTIG analyst Peter Saleh wrote Friday in a note that restaurant industry traffic appears destined for another negative year. But there’s reason to believe it could be even steeper.
The presidential election (and all that leads up to it), as well as this summer’s Olympics aren’t necessarily good news for restaurants.
In 2016, the event presented a “significant distraction from restaurant visits,” Saleh said, “which has negative implications for most of casual dining given their dependence on in-restaurant sales.”
Concerning the election, the feeling that all you see on TV are political ads? That’s not ideal for operators, either. Expect elevated media inflation this year “as candidates battle for voter attention on national TV,” Saleh said.
Concepts that cater to off-premises dining and have invested in advertising budgets are best positioned in 2020, Saleh believes.
The Olympics and presidential debates could serve as an accelerant for the aforementioned off-premises trends. Even more people are likely to stay in instead of go out to restaurants.
Saleh estimated the traffic hit at an additional 100–150 basis points “as consumers opt for their couch versus a restaurant dining room.”
“We believe this dynamic bodes well for the pizza delivery operators as well as concepts with significant off-premises sales, like Chipotle and Wingstop,” he wrote.
If restaurants weren’t investing in off-premises and advertising in 2019, this coming year will be a tough one to play catch-up. In addition to the weaker traffic restaurants typically experience during election years and summer Olympics, traditional TV media tends to be more expensive as political campaigns drive up rates ahead of the November election.
“While many restaurants have been shifting advertising dollars to digital and social channels, we believe the majority of operators will have flat to negative TRPs in 2020 given the inflationary trend,” Saleh said.
And no look-ahead could exist without factoring in wage inflation. Akin to 2019, restaurants are likely in for mid-single-digit rises as 24 states hike minimum wage and the war for talent gains momentum. California’s minimum wage is headed up 8.3 percent to $13 per hour as it tracks toward $15 by 2022. That could signal serious battles for brands like Jack in the Box, Del Taco, and The Cheesecake Factory, Saleh said.
Using data from the U.S. Census Bureau’s American Community Survey, the Association said the restaurant industry has added jobs with annual incomes between $45,000 and $74,999 at a rate more than three times stronger than the overall U.S. economy.
The number of jobs in this income range boosted 71 percent between 2010 and 2017 and it appears that will continue. In 2009, 12.3 million people were employed in the restaurant industry. In 2019, it was about 15.3 million.
“The sales headwinds, combined with media inflation from the multitude of campaign advertisements and continued labor pressure, leaves us with a relatively cautious outlook compared to recent years,” Saleh said.