TDn2K’s July snapshot showed growth for chain restaurants, but the overall picture was a bit concerning. The industry posted same-store sales gains of 0.5 percent during the month. However, this was measured against a very weak July 2017—the third slowest month in the past three years in fact. July’s results were also a 0.5 percentage point drop from June.
“Restaurants had a terrible month in July of last year,” said Victor Fernandez, vice president of insights and knowledge for TDn2K, in a statement. “With same-store sales down 3 percent, July of 2017 was the third worst month in the last three years. Only two winter months hit by extreme weather posted weaker results. Therefore, the small uptick in sales in July is far from being cause for celebration given the extremely easy comparison. If anything, it was a great missed opportunity for the industry to post its best results in years.”
Yet again, declining guest counts hurt chains across the country. Same-store traffic fell 1.8 percent in July. This was also a poor number in relation to last year’s 4.8 percent decline. “Restaurants may be getting a bigger piece of the overall food spending than grocery stores, but price increases are driving the increased spending,” said TDn2K, which measures its Black Box Intelligence from weekly sales of more than 30,000 locations. “When it comes to traffic, chains have been losing guest counts to their many competitors every year since the recession.”
Comp traffic, on a rolling three-month basis, is down 1.95 percent. Comp sales have gained 0.46 percent. This is proof of another recurring theme. “ … as July demonstrated, chains continue to face fundamental challenges and growth is highly dependent on being able to maintain check increases that offset declining guest counts,” Fernandez added. “As the industry laps over tougher comparable months in the fourth quarter, if consumers don’t start seeing some robust increase in their real disposable income, which the economy has been unable to deliver in the last two years, we may start seeing a reversal in the upward sales trend we have been experiencing this year.”
Of the 196 designated market areas measured by Black Box, 120 (61 percent) achieved positive sales growth in July. In June, 73 percent hit the mark. Also, only eight of the 11 regions of the country posted positive same-store sales growing this past month. Ten saw positive growth in June.
The strongest region was the Western segment, which saw sales of 2.2 percent and negative traffic of 0.36 percent. The weakest was the Mid-Atlantic Region. There, sales fell 0.64 percent amid a traffic drop of 2.77 percent.
Fast casual was the top-performing segment in July. Only family dining and casual dining joined in positive territory. Fast casual and casual dining have reported the biggest improvement in same-store sales growth in 2018 versus 2017. Fast casual has reported six consecutive months of positive sales growth.
On the labor front, TDn2K’s People report showed turnover stabilizing for hourly employees. Management turnover, though, is still on the rise. “The labor markets continue to be extremely tight, with the unemployment rate at 4 percent or lower in the last four months. To further complicate things, job growth in the industry accelerated,” the report said. The number of chain restaurant jobs upped 1.7 percent, year-over-year, in June.
“As a result, restaurant turnover for both hourly employees and managers continues at record high levels. New and replacement positions constantly become available and employers are always on the outlook for new ways to fill the vacancies. To no surprise, most operators still consider staffing to be one of their biggest pain points,” TDn2K added.
As for how the economy is affecting the overall picture, Joel Naroff, president of Naroff Economic Advisors and TDn2K economist, said: “Significant economic momentum was carried into the summer that should allow solid growth to continue for the overall economy. Despite a less than stellar July job gain, the three-month average was still extremely robust.”
“But wage gains remain limited and continue to expand at a lethargic pace,” he added. “While that has yet to affect consumer spending, which is being hyped by the tax cuts, it raises questions about the ability to sustain the solid consumption over the next year. In addition, there are few indications the issues being created by the trade skirmishes will dissipate soon. Thus, while expectations are for restaurant spending to continue to expand slowly, the risks appear to be on the side of a moderation in demand as we go into 2019.”