Industry News | April 17, 2017 | By Danny Klein | QSR Exclusive Brief

Fast Casual, Restaurant Sales Sag in March

March may have been better than February, but it still wasn't great. Thinkstock
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The arrival of spring brought a bit of good news for the restaurant industry: From a sales and traffic perspective, March wasn’t quite as bad as February.

However, sagging results means the industry has reported negative sales in 11 of the last 12 months, according to TDn2K, which compiles data based on weekly sales from over 26,000-plus restaurant units and 145-plus brands, representing $66 billion in annual revenue.

Same-store sales dropped 1.1 percent as traffic fell 3.4 percent in March. That was still good enough for a 2.5 percent increase in sales compared to February and a 1.6 boost in traffic.

“March sales were expected to be somewhat better than February due in part to the catch-up of tax refunds that were initially delayed in February,” says Victor Fernandez, executive director of Insights and Knowledge for TDn2K. “In addition, the industry likely benefitted from the shift in the Easter holiday, which fell in March in 2016. For the largest segments [quick service and casual dining], this holiday represents a potential loss of sales.”

“The fact that sales were still negative in March given these tailwinds highlights the challenge chains have faced since the recession. Factors like restaurant oversupply and additional competition for dining occasions continue to take their toll on chain traffic.”

No Change for a Quarter

Same-store sales declines of 1.6 percent means the first quarter of 2017 was the fifth consecutive quarter of negative results. The last time that happened? In 2009 and the first half of 2010. That’s notable when you consider the nation was climbing out of a recession. As TDn2K points out, “Furthermore, the first quarter of 2017 followed a very disappointing 2.4 percent sales drop in the fourth quarter of 2016, highlighting the difficult operating environment currently facing many operators.”

Same-store traffic fell 3.6 percent in the first quarter. Since the beginning of 2016, quarterly declines have averaged 3.4 percent.

Checking on Guests

Many pundits have credited the rise of menu prices in correlation with alternative options (grocery stores, C-store options) as a culprit for the industry’s recent downturn. For the first quarter of 2017, average check was up 1.9 percent. In 2016, it averaged 2.3 percent. The growth rate in trending downward, but it’s a snail-like decline. “This is likely the result of brands relying more on promotions and conservative menu price increases in response to continual declines in traffic,” the report says.

What’s in a Check?

Continuing a recent trend, segments with the highest and lowest average check experienced better results. The stronger first-quarter performer was upscale casual, followed by fine dining and quick service.
“It is important to mention that fine dining and upscale casual are among the segments most negatively impacted by the shift in Easter,” TDn2K says.

The weakest performers were family dining and fast casual. Family dining naturally suffered from the Easter shift.

Casual dining reported some positive news. In 2015 and 2016, the segment trailed industry averages by roughly 0.7 percent. While still negative, that gap closed to 0.1 percent in the first quarter. Casual dining has outperformed industry results in six of the past eight weeks. Fast casual, on the other hand, has trailed industry benchmarks six times.

It’s Not Working Out

Restaurant job growth year-over-year is now in the red. After slowing down in recent months, it is now negative, something TDn2K believes is “likely a combination of the pace of new restaurant openings also slowing and staffing levels decreasing due to labor market challenges as well as conscious decisions to control costs.”

Around 60 percent of restaurant brands tracked reported lower employee counts during February than a year ago. “This may not be good news for service scores and guest satisfaction,” T2n2K adds.

Restaurant turnover rates continue to skyrocket as the labor market approaches near full employment. Turnover for restaurant hourly employees as well as managers increased again during February. The rates are higher than they have been in more than 10 years.

“Even if wages have been increasing slowly in recent years, this is expected to change soon as the labor market continues to tighten. In fact, according to a recent survey by People Report, about 80 percent of restaurant companies reported having to offer additional financial incentives to attract candidates in tough recruiting markets. In most almost all cases, those incentives take the form of higher base pay,” the report says.

“We continue to seek the answer to ‘is our industry winning its share of the wallet in the economy overall and share of stomach in the overall food and beverage industry,” says Wallace Doolin, chairman and founder of TDn2K. “First quarter results would say that we are not winning our share so far this year. Our research does show there are real winners with impressive results. These ‘Top Box’ performers are across the segments, size and ownership of the brands. Brands investing in the customer experience and the employee experience with technology and staff development are stealing share to grow their businesses.”