The worst appears to be over. For the second consecutive month, the restaurant industry reported positive momentum, a welcome sign for operators following one of the roughest third quarters in recent memory.

Same-store sales remained flat, year-over-year, for November, according to TDn2K’s latest Restaurant Industry Snapshot, which is based on weekly sales from 30,000 restaurant units, 170-plus brands, and more than $68 billion in annual revenue.

The numbers weren’t quite at October’s 0.9 percent level, but were still significantly better than the average 1.6 percent decline over the first nine months of 2017.

While a great metric to build on, Victor Fernandez, executive director of insights and knowledge for TDn2K, said in a statement that there are still challenges ahead.

“Our concern is that these improved trends come despite the fact that the industry has not cracked the code on declining guest visits,” he said. “Brands have come to rely on rising checks to overcome the steady loss of traffic.”

To his point, same-store traffic fell 2.5 percent in November, a 0.9 percentage point drop from October. More worrisome: It’s been nearly three years since restaurants experienced a month of positive guest counts.

This hasn’t stopped guest check growth, however. Even with value-based promotions picking up across foodservice, especially in the quick-service sector, average guest check was up 2.4 percent in November and 2.5 percent in October. Both are higher than the 2 percent reported for the first nine months of the year.

“Higher check average increases are risky in a market with steadily decreasing traffic, but brands may be using price to support margins as they face rising labor and operating costs,” Fernandez said.

Competition is still squeezing the industry. TDn2K said market saturation is hurting same-store sales growth but boosting total industry sales, which are up almost 3 percent in 2016 and the first three quarters of 2017.

Quick-service restaurants are grasping much of this gain. TDn2K’s Black Box Intelligence research encompassing a sample of more than 125,000 locations showed that more than 70 percent of all dollars spent in chain restaurants in the first three quarters went to quick service and fast casual.

“These segments are not only large, but they’re also the fastest growing. Quick service, in particular, had a significant increase in market share during the third quarter. Consumers seem to be reacting positively to the value strategy being promoted by many of the segment’s leading brands. The gains in quick service and fast casual are coming primarily at the expense of casual dining,” TDn2K said.

And yet again, turnover and labor were problematic for operators. TDn2K’s research pointed to guest perception of service as a key differentiator between the high and low performers. Hourly employee turnover is stabilizing, the report said, after years of increasing rates and dropped slightly during October. It is still the highest it’s been in over 10 years, though. TDn2K’s People Report also showed that turnover for manager positions is at historically high levels as well.

Fernandez said restaurants do have reason to be cautiously optimistic heading into the fourth quarter thanks to a strong economy and high consumer confidence.

“Sales for the first two months of the quarter are up marginally (0.4 percent),” he said. “We expect that visits to brick-and-mortar retailers will again influence restaurant sales during the busy holiday season. But if current trends continue, it will mark the first quarterly sales increase for the industry in two years.”

Joel Naroff, president of Naroff Economic Advisors and TDn2K economist, added that economic factors are giving rise to some positive trends.

“While the negative impacts of the hurricanes were not great, the rebuilding and replacement of losses have hyped growth. Job gains are strong, though wage increases continue to lag. Consumers’ confidence is high and as a result, they are willing to cut into savings in order to maintain their standard of living. While that is supporting growth now, it could create spending issues next year” he said. “As for the tax bill, the impacts on the restaurant industry could vary greatly.  Lower and lower middle-income households benefit modestly, middle-income households a little more and upper-income households a lot. Thus, additional spending on eating out will depend upon the income level of the restaurant’s clientele. It should not be assumed that all restaurant chains will benefit significantly from the tax cuts.”

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