Sales growth held strong for the restaurant industry this September — continuing a two-month streak of positive gains after unseasonably low sales growth results in June and July. September same-store sales growth was +5.2%, just a minor dip from the +5.3% reported in August. Steep declines in gas prices and the moderation of inflation rates appear to be the reasons behind the bolstered sales growth numbers.
Although those same factors seem to be slowing the erosion of guest counts across nearly all segments in the restaurant industry, guests continue to pull back on spending as their earnings decrease year-over-year (YoY) once adjusted for inflation.
As Black Box Intelligence’s Out-of-the-Box Newsletter has been reporting all year, the decline in guest count continues to be the industry’s biggest headache. September’s traffic numbers won’t offer much relief. Same-store traffic growth fell to -3.6% YoY in September — down -1.9% from August 2022. Though this month’s results are an improvement over the average -4.9% in June and July (a sliver of a silver lining) — this is the seventh month in a row (since March 2022) that same-store traffic growth numbers have been negative.
Segment-to-segment guest count growth performance is reporting much of the same. With the exception of fine dining, all restaurant segments experienced negative same-store traffic growth during Q3 2022.
Black Box Intelligence analysts lengthened the span of time on traffic growth data to offer a broader perspective on guest count. The findings reveal that the negative trend in traffic growth goes beyond 2021. Three-year traffic growth rates for most restaurant segments slowed during Q3 2022 compared to Q2. Quick service and family dining were the only two segments to experience improvements in their guest count growth rates — revealing that guests may be trading down to less expensive options when choosing to dine out.
All growth numbers are year over year unless specified. Best and worst performing region, segment and cuisine is based on same-store sales growth.
Service sentiment swings positive for full-service brands
The imbalances previously plaguing labor markets as well as the demand for dine-in experiences seem to be right-sizing amidst the current environment’s “norms.” September’s data reflects those subtle shifts in the full-service segment with small improvements to overall sentiment. Regarding Service, Q3’s net sentiment improved two percentage points compared with Q2 and seven percentage points YoY.
Indeed, in Q3 guests appear to be pleased with the full-service experience compared to the previous quarter’s sentiment results. Guest reviews reveal they are more satisfied with server attentiveness and friendliness compared to last quarter. Guests also report an overall better experience with more mentions of “amazing” service. Most notably was a decrease in negative keywords such as “rude” or “bad” and a reduction in the number of reviews with mentions of wait time complaints — an issue that has haunted understaffed full-service brands for much of the year. The number of mentions of restaurants being “understaffed” has also declined.
So, what’s behind the marked change in full-service sentiment? The uptick in overall experience could be attributed to a decline — perhaps normalizing — of guest expectations. After all, the staffing crisis and the challenges that come with it are not lost on diners. Another possible factor: There has been an increase in front-of-house employee retention and, compared to last year, a decrease in employee absences due to COVID-19. In other words, front-of-house employees are showing up and guests are taking notice.
Limited-service segment struggles with cleanliness and food quality
Demand remains strong for restaurants with lower price points — even amidst the current inflationary environment. Yet, despite the healthier performance, turnover and brand tenure declined quarter-over-quarter for restaurants in the limited-service segment.
Guest reviews reveal net sentiment for ambiance fell five percentage points in Q3 compared to last quarter and nine percentage points compared to Q3 2021. The biggest factors responsible for the dip in ambiance net sentiment include “cleanliness,” particularly the bathrooms, floors, and tables. Q3 guest reviews saw more frequent use of negative terms such as “dirty,” and fewer positive mentions around terms such as “clean.”
In terms of food, limited-service guest review data reveals declines in favor and quality net sentiment. Flavor sentiment declined five percentage points compared to last quarter — fueled by fewer mentions of “delicious” and “yummy.” Quality declined even further — down seven points — because of fewer and more negative mentions of “fresh.” Interestingly, guests specifically called out issues like “dry bread,” “stale chips,” and most pronounced, “old and dry chicken.”
Chicken deserves additional attention within the limited-service segment. Chicken prices have retreated from the all-time highs they reached over the summer. The significantly higher prices may have forced some limited-service restaurants to change their chicken specs which may have impacted execution in the back-of-house — ultimately leading to guests’ perceived decline in quality.
Increased manager compensation can help drive financial performance
With the labor shortage intensifying industry competition for talent, restaurants have been scrambling to better understand how to adequately staff their locations. The results from Black Box Intelligence’s 2022 Total Rewards Survey reveal compelling correlations between compensation and financial performance.
The Black Box Intelligence Total Rewards Survey aims to provide employers with an overview of the competitive landscape across all levels of an organization. It offers valuable benchmarks for benefits, training, diversity, bonuses, and compensation. Combining the results from this survey with Black Box Financial and Workforce Intelligence gap-to-segment scores (how a brand performs against its segment median) reveals a strong relationship between general manager base pay and bonuses and restaurant performance.
Increased merit-based pay reigns supreme
No matter how obvious it may seem, it remains ever relevant and worth mentioning: The data indicates that in the current environment, increased pay is a crucial lever to reduce turnover. Of all the employee rewards mentioned in the survey, none had a stronger correlation than merit-based pay increases and turnover.
For the general manager position, the companies surveyed that had the highest merit-based pay increases in 2021, outperformed their respective segment by 2% in 2021 Q4 GM turnover, 22 points better than the companies with the lowest pay increase, who tended to experience much higher turnover rates than their segment’s benchmark.
This seems to translate on the financial end as well. Companies with the highest pay increases beat their segment by 10 percentage points more in same-store sales growth and 9 points more in same-store traffic than the lowest paying brands in 2021 Q4.
Higher target bonuses, higher sales
Turning our attention to bonuses, we found that higher restaurant general manager target bonuses correlate positively with sales. A target bonus is the percentage of your base salary that may be awarded annually if certain performance criteria is met. This distinction is an important one: the mere incentive of a bonus itself has a positive association.
In 2021, the companies that offered the highest target bonuses to their general managers outperformed their segments by 8.6 percentage points more on in same-store sales growth on average than companies with the lowest target bonuses for their general managers. In 2022, this number grew to a difference of nearly 14 percentage points.
As staffing becomes more complex and the economy increasingly volatile, restaurants need to identify what kind of compensation works and adapt to a demanding landscape. Not only for reducing their turnover, but for boosting the bottom line as well. The Total Rewards Survey shows that providing opportunities for pay advancement for restaurant leaders, incentivizing them to aim high, and rewarding based on their performance gives brands a serious advantage over their rivals in this cutthroat industry.
