January froze some of the restaurant industry’s recent sales momentum, but it might not be time to sound the alarm just yet. TDn2K’s latest The Restaurant Industry Snapshot, which gathers data from weekly sales of more than 30,000 restaurant units and 170-plus brands, showed same-store sales declines of 0.3 percent across the entire industry in January. This is a 0.6 percentage-point drop from December and broke a three-month streak of flat or positive sales growth.

The culprit, as it has been in recent memory, was a dip-in same-store traffic. Compared to the previous January, traffic declined 3 percent—also a 1.3 percentage-point fall from the previous month.

But is the sales surge officially over? Victor Fernandez, executive director of insights and knowledge for TDn2K, said certain factors in January should be taken into consideration when looking at the broader picture.

“Although January’s sales results are somewhat disappointing, we remain cautiously optimistic about the industry’s performance,” he said in a statement. “Even if the month posted some small negative growth in sales, January’s results were better than for any other month in the February through September period last year.”

And beside the improved performance relative to 2017’s struggles, there were extrinsic factors at work. “The first week of the year was aided by a calendar shift regarding the New Year’s Day holiday, but more importantly, severe winter storms hit large regions, primarily in the east coast, causing significant losses in restaurant sales later in the month,” he said.

Winter storms blanketed the Mid-Atlantic, Midwest, and New England at times during January. Not surprisingly, these three regions reported worse results than the rest of the country. All posted same-store sales declines of 2 percent or worse. They also experienced drops of sales growth of at least 1.5 percentage points when compared with the average for the previous three months.

Texas, the Southeast, and Florida also suffered a decline in sales growth of 0.5 percentage points or worse when compared with their previous three-month averages.

As Fernandez points out, if you remove the Mid-Atlantic, Midwest, and New England, restaurant sales growth only dropped 0.1 percentage points in January compared to December. “In other words, sales growth would have remained essentially flat. And that doesn’t remove the effect, albeit smaller, that weather had in other regions of the country,” he said.

Another trend, the rise of average guest check, continued. Average guest checks grew by 3 percent, year-over-year, during January. The last time they lifted at a higher pace was almost three years ago. The check average bump is also a significant uptick from the 2.3 percent reported in the fourth quarter of 2017.

Casual dining was the driver behind this growth. “This seems to be a departure from the discounting strategy and low guest check growth experienced by this segment last year,” TDn2K said. It appears some brands are offsetting traffic declines with higher check averages.

Fast casual, however, reported the lowest guest check growth of all segments, perhaps hinting that fast casuals are feeling the heat of quick service’s value wars.

“The results since last October suggest a new strategy based on modest increases in average checks either through conservative price increases, price promotions and discounting, or perhaps both,” TDn2K added.

Fine dining and upscale casual were the only segments to report positive sales in January. They have led the industry in sales growth since the beginning of last year. TDn2K credits the rise to “experience-based dining” and customer’s willingness to fork up savings for it. “Business-related dining has also been a contributing factor, especially in the case of fine dining,” it said.

Casual dining was the third best performing segment for January. Sales nearly entered green territory thanks to casual dining’s second-best month in the last year.

Yet again, staffing difficulties plagued operators. TDn2K asked restaurant owners about their biggest concerns and two areas popped: restaurant traffic and employee staffing.

“They have reason to be concerned regarding the people side of the business. With the economy at full employment, turnover has reached historically high levels for both hourly and restaurant management employees,” TDn2K said.

This is twofold, as the data showed. Top-performing brands, based on same-store sales growth, achieved turnover rates much lower than industry averages. In other words, high turnover equals worse revenue. Not a shocking reality but a troubling one nonetheless. And it hurts the bottom line.

According to the company’s recent People Report Restaurant Recruiting and Turnover Survey, the hard costs associated with turning over one hourly, non-supervisory employee on average is about $2,000. “With turnover rates well over 100 percent for most restaurant brands, the expense and disruption of business is an enormous operational cost,” TDn2K said.

Returning to economic conditions, Joel Naroff, president of Naroff Economic Advisors and a TDn2K economist, said the economy continues to grow solidly and tax cuts should add to the expansion soon. However, “that is both the good news and the bad news,” he said.

“Stronger growth in the 3 percent range looks likely this year and into 2019 as consumers spend the extra money in their paychecks and businesses increase their capital spending. But the added demand comes on top of an economy that was already good and labor markets were already tight. That has raised concerns wage and price inflation will accelerate and interest rates could rise higher and faster as a consequence,” Naroff said in a statement.

Naroff added that the growing uncertainty regarding inflation and interest rates explains, to some degree, the recent volatility in the equity markets. This shouldn’t change the direction of growth in any significant way, however.

“It will be better the rest of this year and that should lead to more spending on all types of activity, including restaurants,” TDn2K said.

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