Reasons Emerge for Worst Chain-Restaurant Slump since 2009, by Wolf Richter

Restaurants, which have been a bulwark of employment and growth, are hitting the skids. From Wolf Richter at wolfstreet.com:

Foot traffic at chain restaurants fell 3% in June year-over-year. Same-store sales fell 1%, the 16th month in a row of year-over-year declines, completing the sixth quarter in a row of sales declines, the longest downturn since 2009.

Food sales were down, alcohol sales were down. The only thing that was up was prices, but it wasn’t enough to make up for the decline in guest count: the average amount per check rose just 2% in June.

“Brands seem to be reluctant to implement significant price increases given the current environment. Price promotions have been widely utilized, especially by struggling brands and segments to drive traffic,” said Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K, whose Restaurant Industry Snapshot tracks sales at 27,000 restaurant units from 155 brands, generating about $67 billion in annual revenue.

Sales rose in 45 markets and fell in 150 markets. California was the least bad region, with same-store sales up 1.4% and foot traffic down 1.1%. Texas was the “worst region” for the second month in a row, with sales down 2.2% and foot traffic down 4.1%.

How bad is the problem for chain restaurants? So bad that this decline was in fact “good news,” after all the even worse declines in prior quarters. Q2 was the least bad quarter since Q2 2016!

But for the wrong reasons, according to Fernandez: “The reality is that we are also lapping over some weak results in 2016 which make the comparisons much easier for the industry in 2017.”

As always, there are glimmers of hope, but not really, according to Joel Naroff, president of Naroff Economic Advisors and TDn2K economist:

“The summer season should be solid as people have money to spend. Unfortunately, until wage gains improve, which so far continue to be disappointing, no major acceleration in spending at restaurants should be expected.”

The high end – fine dining – was the top performing segment, according to the report, as “affluent restaurant consumers continue to respond positively to those brands that provide a more experience-driven dining occasion.” The upscale casual segment was the second best performer.

To continue reading: Reasons Emerge for Worst Chain-Restaurant Slump since 2009

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