Even the most optimistic of restaurateurs didn’t expect the second quarter of 2017 to look all that different from the first. Restaurants are in a period of transition. Grocery store prices are falling and consumers are becoming more selective with their wallets. Meanwhile, competition is flooding the market and blurring the once distinct lines between foodservice segments. Like any shift in economics, adjustment sometimes isn’t for the faint of heart.

BDO’s latest edition of The Counter, which compiles the operating results of publicly traded restaurant companies, showed a mixed bag of results across the industry. Overall, same-store sales dropped 0.2 percent. That was an improvement from the 0.7 percent decrease Q1.

Fast casual remains in a state of flux, however, as sales fell 1.7 percent. This has been a common tale of late. Industry consultant Pentallect Inc. told Bloomberg in July that it expected fast casual sales growth to slow between 6–7 percent from about 8 percent in 2016. In each of the previous five years, sales boomed between 10–11 percent.

Naturally, there are many reasons for the decline. The category is plateauing. It is also becoming more saturated by the minute.

“We continue to see higher labor costs due to several factors. While saturation in the fast casual segment has affected same store sales, it has also had an effect on the cost of labor as the industry is dealing with a shrinking labor force,” says Adam Berebitsky, co-leader of BDO’s Restaurant Practice. “This all is taking place while some restaurants have to deal with an increase to the minimum wage in states they operate in. It will be important for fast casual restaurants to be creative in how they combat higher labor costs while attracting and retaining quality employees from a limited pool. Most likely they will need to utilize technology in order to do more with less people”

But it wasn’t all stormy. Chipotle might be dealing with a decline in investor optimism on the stock market, as well as soaring avocado prices that could take a bite out of its bottom line moving forward, but the chain’s same-store sales have steadily climbed since a 2015 food safety crisis erased around half of its market cap. Its 12.5 percent surge in the quarter, along with Habit Burger’s 0.5 percent increase helped.

Privately held fast casuals, which many are, especially in the 2.0 category, are not included in this data.

“Most brands are focused on getting into the good graces of millennials. Those who have gotten the stamp of approval are more tech savvy and have stronger delivery systems than their peers. This is especially important for the oversaturated fast casual segment where it’s easy to get lost in the crowd,” Berebitsky says.

Another positive note: BDO’s data shows that cost of sales rose across all segments aside from fast casual, which actually enjoyed a 0.1 percent decline over the same period last year. Fast casual cost of sales were the highest in the industry at 30.5 percent. (BDO counts food and beverage for all segments, but just packaging costs for quick service and fast casual). Labor was 28.6 percent—the lowest of any category, and prime costs were 59.1 percent, third highest behind casual (61.2 percent) and quick service (60 percent).

Overall, BDO says that delivery services are disrupting the industry, “particularly as companies invest in new ways to get food from their kitchen to your door and third-party services fight for market share.”

The leading segment across foodservice was the pizza field, which reported same-store sales growth of 3.5 percent at publicly traded companies. Domino’s and its sizzling domestic businessanchored the category for the 11th consecutive quarter with a 12.6 percent comp increase.

“As technology continues to play a deciding role in restaurant success, consider looking to Domino’s for a sneak peek at what might trend next. From smarter delivery to its easy-to-use app, Domino’s is building a reputation on scratching consumers’ convenience itch by offering speedy delivery and allowing users to place and precisely track orders,” BDO says in the report.

Quick service grew 0.3 percent in the quarter thanks, in part, to Yum! Brands’ healthy growth at Taco Bell (6 percent sales bump) and KFC (3 percent). Cost of sales were 29.9 percent, labor 30.1 percent, and prime costs 60 percent. All of those numbers are slightly up from the full-year 2016 (29.7 percent, 28.9 percent, and 58.8 percent, respectively). Quick service also had same-store sales growth of 0.9 percent that year.

Upscale casual reported same-store sales growth of 0.2 percent buoyed by results at J. Alexander’s, which enjoyed a 4 percent uptick in comps.

Casual dining saw a 0.6 percent same-store sales decline through the quarter, which is in line with recent results. In 2016 comps fell 0.7 percent for the year.

Bloomin’ Brands, parent company of Bonefish Grill, Carrabba’s, and Outback Steakhouse, trended upward, while Texas Roadhouse remained strong with 3.6 percent growth.

Applebee’s and Kona Grill’s tough quarters pulled the segment down, BDO says. Applebee’s same-store sales fell 6.2 percent year-over-year in the second quarter. They fell 5.3 percent at Kona Grill.

As far as commodities and cost of sales go, BDO says, “Heightened costs led to the rollback of discounts and promotions for many to make up for steeper costs.”

Vegetables and poultry prices rose 6.2 and 1.6 percent, respectively. “The industry experienced several years of favorable commodity pricing, which appears to be changing. To offset these expenses, some restaurants are re-engineering their menus and promotions to focus on high-margin items. Specifically, classic chicken and chicken wing-centric restaurants are drawing attention to other menu items as poultry prices experience inflation,” BDO says in the report.

An example: Buffalo Wild Wings decision to swap boneless wings in for its traditional product for its half-price Tuesday wing deal.

Average workforce costs grew 0.8 percent across the industry in the quarter compared to the end of full-year 2016.

“Many attribute this rising cost to wage pressures and worker shortages, forcing restaurants to pay top dollar to retain quality employees. For most, it’s challenging to offset this growing line item without increasing prices for consumers,” BDO says.

BDO also adds that technology continues to offer solutions, sometimes in the form of robotics or automated products capable of replacing some positions. Kiosks, tablets, and on the other end of the spectrum, robotic kitchen assistants, are becoming more prevalent.

Tax reform is also a key subject moving forward. “One of the pillars of the White House’s plan is to simplify the individual tax code while decreasing the overall tax obligation. Lower taxes combined with steady consumer confidence could bode well,” BDO says.

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