Payroll tax drags down February restaurant sales

The restaurant industry suffered its worst same-store sales decline in three years, partly due to the effects of the payroll tax on consumers, according to the latest NRN-MillerPulse survey.

MillerPulse, an operator survey exclusive to Nation’s Restaurant News, questioned operators from 49 restaurants in March regarding February sales, profit trends, performance and outlook. Respondents included operators from all regions of the country that represent the quick-service, casual-dining, fine-dining and fast-casual segments. Those surveyed in March represented restaurants that booked about 18 percent of industry sales.

Overall industry same-store sales fell 1.8 percent in February, which is the first time sales had been negative since Feb. 2010, the survey found. Guest traffic also sharply declined for the month, with overall traffic dropping 2.9 percent. And while factors such as unfavorable weather likely contributed to the decline, the effect of the payroll tax put in place at the beginning of the year cannot be ignored, said Larry Miller, restaurant securities analyst at RBC Capital Markets and creator of the monthly MillerPulse surveys.



“Weather certainly played its part in the drop in industry sales in February, but it's becoming clearer to us that the payroll tax is affecting sales too,” Miller said. He also noted the significance of the increase in the percentage of operators who cited the tax hike as the culprit for slowing sales — 63 percent in March versus 36 percent in February. This was bolstered by the fact that 54 percent of the respondents to the consumer survey in March said that they had cut back or were cutting back on spending, with the largest cuts falling within restaurant spending, he said.

Both major industry segments — quick-service and full-service restaurants — took a hit during the month, the survey found. Sales at quick-service restaurants, which include both fast-food and fast-casual brands, saw sales weaken to their lowest level since 2010, reporting an increase of just 0.1 percent in February, compared with the 1.7-percent increase the month prior.

Full-service restaurants, which have been struggling for months and include both casual-dining and fine-dining brands, continued to bear the brunt of tightened consumer spending. Sales were down 4.9 percent in February, compared with the 2.0-percent decrease reported in January, the survey found. Guest traffic at quick-service and full-service restaurants was down 1.7 percent and 4.8 percent, respectively.


While February was the toughest month the survey has reported in three years, Miller said better sales in early March and calmer weather going forward have operators optimistic that things will improve.

Next month, expectations hit the second highest level on record, the survey found, with a net 69 percent of operators expecting March sales to be better than February. That figure was calculated by the 69 percent of operators who said things would be better in March versus the 0 percent who said that they would be worse. The outlook for the next six months was also positive across all segments.

Register for MillerPulse at millerpulse.com

Contact Charlie Duerr at charles.duerr@penton.com.