Performance gap widens between quick-service and full-service restaurants

Restaurant industry same-store sales improved overall in August, but the gap between the quick-service and full-service segments continued to widen, according to the latest NRN-MillerPulse survey.

MillerPulse, an operator survey exclusive to Nation’s Restaurant News, included respondents from 56 restaurant operators in September regarding August sales, profit trends, performance and outlooks. 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 September represented restaurants that booked about 14 percent of industry sales.

Overall, industry same-store sales rose 2.4 percent August, a modest improvement compared with the 2.1-percent increase in July. Quick-service restaurants, which include both fast-food and fast-casual brands, continued to be the industry’s top performing segment, with a same-store sales increase of 3.7 percent in August, compared with 2.6 percent in July.

However, as has been the case in previous months, full-service restaurants, which include both casual-dining and fine-dining brands, continued to struggle. Same-store sales at full-service restaurants rose only 0.9 percent in August, dropping from the 1.7-percent increase in the prior month.

The widening gap between the quick-service and full-service segments can partially be explained by a tentative consumer, according to Larry Miller, restaurant securities analyst at RBC Capital Markets and creator of the monthly MillerPulse surveys.

“The consumer looks scared to us,” Miller said. “They're not spending to what we think is their current capability. Rather, we can see in the daypart and average check components we track a consumer that is seeking more value, managing how much they spend while at restaurants, and monitoring their frequency in the more discretionary dayparts.”

Traffic trends in August echoed those of same-store sales, the survey found. Traffic at quick-service restaurants rose 1.5 percent in August, compared to being flat in July, while traffic at full-service restaurants fell 0.6 percent in August. Still, overall industry traffic rose 0.5 percent due to the strength of quick-service brands.

Despite a modest improvement compared to July’s performance, a net 26 percent of operators surveyed expect September sales to be worse than August. That number was calculated by subtracting the 16 percent of operators surveyed who believed sales would be better from the 42 percent of operators who thought they would be worse. This disconnect, however, does not come as a surprise, Miller said.

“Operators tend to see a weaker sales outlook in September relative to August because it is a seasonally slow time with back to school,” he said.

Miller also noted that although operators are not particularly optimistic about September, their six-month outlook is positive. Overall, most segments of the industry, with the exception of casual-dining restaurants, are hopeful about the next six months, the survey found.

And while operators across all segments will continue to face the same challenges that have presented themselves in the past — struggling sales growth, the economy and commodity inflation — Miller remains positive about where the industry is at and where it is going.

“I’m optimistic about the back half of the year,” he said. “Stepping back, sales aren’t that bad. We’re basically at the lower end of the 2-percent to 3-percent range we’ve been in since December 2010. If consumer confidence picks up and we get clarity on our political and economic situation post-election, we could see sales rise back to the top end of this range, even as comparisons become harder.”

Register for MillerPulse at www.nrn.com/industry-insight.

Contact Charlie Duerr at [email protected].