Here’s a jolt of good news to start 2019: After a strong December, the restaurant industry posted its best sales year since 2015, according to the latest Restaurant Industry Snapshot from TDn2K.

December’s same-store sales grew 2 percent across the chain segment, which marked the best monthly performance since August 2015. It was the seventh consecutive month of positive growth. The fourth quarter of 2018 was uplifting as well—same-store sales upped 1.4 percent, the best in three-plus years. Not only that, it stacked on the only positive quarter in 2017. From an annual perspective, 2018’s 0.7 percent growth snapped a two-year run of declining sales. In all of 2017, the industry was only able to post positive sales months twice.

“Perhaps the most encouraging news for the industry came in the form of the unusually strong fourth quarter results,” Victor Fernandez, vice president of insights and knowledge for TDn2K,” said in a release. “… The industry’s recovery from a longer-term perspective also continued to show some upward momentum. Same-store sales during the fourth quarter increased by slightly over 1.4 percent compared with the same period in 2016. Two-year sales growth had been negative for the past eight consecutive quarters.”

Broken down:

• December: Comp sales 2 percent; Traffic negative 0.9 percent; Guest check 3 percent
• Q4: Comp sales 1.4 percent; Traffic negative 1.6 percent; Guest check 3 percent
• 2018: Comp sales 0.7 percent; Traffic negative 1.9 percent; Guest check 2.6 percent

One of the questions, though, is whether this sales growth is coming in the restaurants themselves. Off-premises business has accelerated the top-line for chains in the short-term. But it really hasn’t moved the traffic needle. TDn2K’s positive report does reflect this change. Same-store traffic growth dropped 0.9 percent in December. Traffic growth closed the year at negative 1.6 percent in Q4.

On top of the off-premises flood, restaurants are generating better sales through higher checks: Average guest checks grew 3.1 percent in Q4, year-over-year. “It continues to be through an acceleration in average spending per guest that the industry can produce positive sales growth amid the persistently falling guest counts,” TDn2K said.

“Although the importance of persistently declining guest counts cannot be overlooked, there are some small signs of recovery in the latest results,” Fernandez added. “Two-year same-store traffic growth was negative 3.6 percent during the fourth quarter of 2018. The average two-year growth for the first three quarters of the year was negative 5.8 percent.”

A boost in prices compared with grocers and other restaurants is becoming a new normal in the chain dynamic. The rate at which restaurant guests are spending per visit grew during this past quarter. Average check growth of 3.1 percent in Q4, year-over-year, is significant. During the previous three years, average guest check growth never topped 2.5 percent.

The formula: price increases and reduced discounting.

“While many brands utilized heavy discounting and price promotions in 2017, average guest checks only grew by 1.9 percent during the year for the industry. Restaurants seem to have eased off this tactic in 2018,” Fernandez said. “Guest check growth for this year was a significantly higher 2.6 percent pointing to price increases and/or an upward shift in product mix.”

The winners of 2018

Fast casual and casual dining turned in the best same-store sales growth in 2018. But it’s worth noting that both improved after a previous year of “abysmal results,” TDn2K pointed out. “These segments were the worst performers based on same-store sales growth during 2017. The fact that they had soft comparisons the previous year definitely helped boost their results in 2018,” it said.

So, in reality, the real winners were the segments with the highest average checks—upscale casual and fine dining. They both reported strong growth in 2018 and were the only industry segments to sustain positive sales growth averaged over the last three years. They also have the best average traffic growth results since 2015, although that’s a relative note since they’re still struggling to generate guest counts.

Restaurant sales were strong across most of the country in December. From the 197 designated market areas tracked by Black Box Intelligence, 84 percent posted positive same-store sales growth. For perspective, in the past 11 months, the percentage of markets with positive sales growth never topped 76 percent.

Also, all 10 regions of the country except for Florida achieved strong positive same-store sales growth of 1 percent or better during December (Florida was essentially flat). New England was the top performer with sales of 4.21 percent and traffic growth of 0.92 percent.

The workforce problem persists

The frustrating Catch-22 for operators isn’t going away. Service and experience are critical as traffic dips, but keeping and retaining employees has never been tougher. “It is not surprising to hear most operators say most of their restaurants are understaffed and it is harder today to find enough qualified employees,” TDn2K said.

Restaurant employment has grown by more than 1.8 percent, year-over-year, during the last two months. However, the number of vacancies that need to be filled because of turnover continues to rise. “Among the solutions companies are employing to aid in their retention are adjustments to their compensation offerings, improving engagement for their managers and providing training and development opportunities throughout their employee ranks,” TDn2K said.

The tight labor market, while aiding the sales side, is disrupting operations through its effect on staffing levels. According to TDn2K’s People Report Workforce Index, 74 percent of companies reported increased difficulty finding qualified hourly employees. More concerning, 59 percent said they are having a tougher time hiring people to manage their restaurants.

The natural reason for this, especially in the back of the house, is that restaurant turnover continues to increase. Based on TDn2K’s research, during the first 11 months of 2018, median turnover lifted for hourly employees and restaurant managers in both limited-service brands and full-service ones.

“Given that turnover is rising proportionally more for restaurant managers than for hourly employees in both service styles, the expectation is for staffing headaches to carry into 2019,” TDn2K said. “ Management turnover, TDn2K research has revealed, is a leading indicator of hourly retention as well as restaurant sales and traffic performance. It is those brands that are successful at retaining and developing engaged managers who will be better positioned to win the market share battle in the new year.”

“The chaos in the equity markets was not representative of the condition of the economy,” added Joel Naroff, president of Naroff Economic Advisors and TDn2K economist. “Nothing made that clearer than the huge December increase in employment. Businesses are still hiring and that is causing wages to rise faster. As a result, consumer spending is holding up and should continue to do so, which is good news for the restaurant industry.”

“However, most indicators point to a moderation in growth going forward, but only from strong to a more sustainable, yet decent, pace. A recession does not appear to be likely anytime soon and if a major slowdown occurs, it probably would not come before late in the year. Though the moderate growth should support continued improvement in restaurant sales, it will also lead to lower unemployment rates and even greater pressure on wages.”