Same-store sales fell into negative territory in March, the second time a decline was reported in the last three months, according to data reported by TDn2K’s Black Box Intelligence through The Restaurant Industry Snapshot, based on weekly sales from over 24,000 restaurant units across more than 120 brands, representing $61 billion dollars in annual revenue.
Same-store sales declined 0.7 percent in March, the second worst month since February 2014. Only January 2016 was slightly weaker, with same-store sales falling 0.8 percent.
“In recent years, March has typically been strong for restaurant sales as weather becomes nicer at the beginning of spring, some pent-up demand from the winter months is probably acted upon, heating costs go down and spring breaks generate some additional spending,” said Victor Fernandez, executive director of insights and knowledge for TDn2K.
Average weekly sales per restaurant were 9 percent to 10 percent higher than average for the preceding six months for March 2014 and 2015, Fernandez noted. But in 2016, the industry lift in average sales per week was only 8 percent higher than the previous six-month average.
The weakness in March is also evident when considering results from an aggregate two-year period. Although the Black Box Intelligence restaurant index was averaging over 3-percent same-store sales growth over the previous six months on a two-year comparable basis, the two-year growth for March was only 0.7 percent.
With sales falling in two of three months, the first quarter of 2016 broke the streak of seven consecutive quarters of positive same-store sales. Same-store declined 0.4 percent during the quarter, a 0.8-percent drop from the rate reported in the fourth quarter of 2015.
“Although weather continued to be a factor in some regions of the country, the slowdown in restaurant sales appears to go beyond just that,” Fernandez said. “It also goes beyond just a few brands or regions having a tough time.”
Of all restaurant brands tracked by Black Box Intelligence, half reported negative same-store sales during the first quarter, up from 40 percent of brands reporting negative growth in the fourth quarter of 2015.
Additionally, over 60 percent of brands reported data showing their same-store sales growth worsening in the first quarter compared with the fourth quarter. Seven of the country’s 11 regions posted negative same-store sales in the first quarter. By comparison, only five and three regions reported decreasing sales in the fourth quarter and third quarter of 2015, respectively.
“The consumer has pulled back recently,” said Joel Naroff, president of Naroff Economic Advisors and TDn2K economist. “The March retail sales report was weak, and restaurant demand dropped sharply. Over the past four months, consumer behavior has been varying wildly, and it is not clear why. The willingness to spend on most goods, especially eating out, seems to wane and then come back.
But this may only be a temporary pattern, since consumer confidence remains high, incomes are growing and job growth is solid, Naroff noted. Household spending should rebound as summer approaches, but erratic spending patterns raise questions of whether an upturn will be strong.
Restaurants continue to struggle with guest counts since the recession. Same-store traffic fell 2.4 percent in the first quarter, a 0.3-percent drop from the fourth quarter 2015, and the worst quarter in the last two years. The problem is widespread: 71 percent of brands tracked by Black Box Intelligence reported negative traffic during the first quarter.
“It seems that as restaurants experienced sales growth slowing throughout 2015, they became less prone to significant price increases or started using promotions more aggressively,” Fernandez said.
The average guest check grew 2 percent year-over-year in the first quarter, compared with an average 2.8 percent for all quarters in 2015, Fernandez noted. But the marginal effect of this on traffic has not been enough to offset the decrease in average guest check. Fifty-six percent of brands reported some improvement in traffic growth, although in most cases growth was negative despite the improvement.
Employment growth rate slows
Regarding the industry workforce, job growth continues to be robust, outpacing the overall growth of jobs in the economy, according to TDn2K’s People Report. After three months of job growth over 4 percent, the restaurant industry year-over-year employment growth rate slowed to 3.5 percent during February. This dip notwithstanding, the number of jobs in the industry has increased by an average 4.2 percent during the last eight months.
According to People Report’s quarterly Workforce Index, recruiting difficulty is the largest challenge for restaurant companies. A recent survey conducted by TDn2K shows that most companies consider finding enough qualified employees to be their most pressing concern in 2016.
A big part of this challenge is rising turnover levels experienced by the industry at both the hourly employee and management level. Rolling 12-month restaurant hourly employee turnover rose again in February, and has increased during 29 of the last 30 months. (Turnover remained flat in January). Restaurant management turnover also increased during February, and has now been rising or flat for 22 of the last 29 months.
According to TDn2K’s White Box Social Intelligence, based on a sample of over 10 million online mentions covering almost 100,000 individual restaurant locations, there have been some interesting shifts in online conversations from restaurant customers since the beginning of 2015.
Although most customers typically mention “food” in their online comments (from a set of three key customer satisfaction attributes tracked for the Restaurant Industry Snapshot (“food,” “service” and “intent to return” — White Box Social Intelligence also tracks six “beverage,” “ambiance” and “value”), the percentage of food mentions has steadily declined, while increasingly more conversations are based on service and “intent to return.”
“Social media and review-based sites are becoming a richer source of broad-based guest feedback that goes beyond just commenting on the food. Additionally, TDn2K research has demonstrated correlations between restaurant-level turnover and guest service perception, suggesting that service based online interactions should become increasingly more prevalent as the labor market continues to tighten and restaurant turnover skyrockets. We believe we are seeing the canary in the coal mine of turnover impacting service, resulting in declines of sales and traffic,” said Wallace B. Doolin, chairman and founder of Black Box Intelligence and TDn2K.
TDn2K (Transforming Data into Knowledge) is the parent company of People Report, Black Box Intelligence and White Box Social Intelligence. People Report provides service-sector human capital and workforce analytics for its members on a monthly basis. Black Box Intelligence provides weekly financial and market level data for the restaurant industry. White Box Social Intelligence delivers unparalleled consumer insights and reveals online brand health. Together they report on over 36,000 restaurant units, over 1.5 million employees and $61 billion in sales. They are also the producers of two leading restaurant industry conferences: Summer Brand Camp and the Global Best Practices Conference each held annually in Dallas.
