Restaurant executives at the ICR XChange conference last week were reticent to give any credit to gas prices for rising sales. More than one noted that there is no evidence gas price fluctuations cause people to go out to eat more often.
That’s true most of the time. But the decline in gas prices has been so pronounced that it’s difficult to believe that they’re not having an impact. And some of the early financial results may well prove that point.
Popeyes Louisiana Kitchen, for instance, reported a 9.8-percent increase in same-store sales in its fiscal fourth quarter. While it was up against weak comparisons and the chain has had some momentum as it is, that is still a substantial increase and the chain’s customer base is likely to benefit from a decline in gas prices.
Sonic Corp., meanwhile, reported an 8.5-percent increase in same-store sales in its quarter ending November 30. Sonic has plenty of momentum, but it also has customers who eat their meals in cars — making lower fuel costs an obvious factor.
Indeed, CEO Cliff Hudson said that “there’s no doubt that, in the last six months, the price of fuel has been a big contributor” to the chain’s increase in traffic.
Mark Kalinowski, analyst at Janney Capital Markets said in a note this morning that his sources talk of “meaningful, measureable increases in U.S. chain restaurant same-store sales trends.”
Indeed, Black Box Intelligence just said that its fourth quarter same-store sales trends were their best in six years. The MillerPulse survey just reported the best December sales number in eight years.
Executives noted that job growth was a big reason for chains’ sales improvement. But that doesn’t explain the late-year spike. The economy has been adding jobs for some time, after all, with little real evidence that it’s getting more people to restaurants. In fact, according to MillerPulse, traffic in restaurants has increased five of the past six months, coinciding with falling gas prices. Before that, traffic had been falling monthly for about a year.
The economic indicator that follows restaurant sales most closely is not jobs, but disposable income. Because restaurants are impulsive in nature, they are frequently among the first businesses to benefit when consumers get some extra cash — and among the first to get cut when that cash gets constrained.
Consider December, when the economy added 252,000 jobs and the unemployment rate fell to 5.6 percent. But wages actually fell — average hourly earnings fell by 5 cents in the month, and have been slow to grow despite the additional jobs.
While gas price fluctuations frequently don’t impact restaurant sales much, this decrease has had a substantial impact on consumers’ pocketbooks.
If a driver uses 60 gallons a month, he or she has $70 more to spend than at this time last year. That’s real cash that may not be able to fund a new television, but it sure could buy a couple of hot dogs and a drink at Sonic.
While that $70 might not mean much to upper income consumers, it does mean something to those in the middle-income bracket that have struggled in the recession’s aftermath.
“It’s hard to say that it’s not” having an impact, Denny’s CEO John Miller said. “When they drop this far, somebody’s got to get occasions. That’s real money.”