August Continues Ugly Restaurant Trends

Even before Harvey slammed Texas, August continued an ugly trend for the restaurant industry.

According to TDn2K, comp sales in its research base declined by 2%, in step with the performance over the last three months of -1.9%. The dismal traffic declines continued in August as well. Traffic slipped -3.9%, slightly ahead of the rolling three-month decline of -3.8%.

"Results from the final week of August were very soft, with two major events impacting results. The first, and most extensive, was the heartbreaking tragedy of Hurricane Harvey," said Victor Fernandez, executive director of insights and knowledge for TDn2K. "Same-store sales in Texas declined 15 percent that last week, almost 13 percentage points below the average of the first three weeks of the month."

Just 22% of the markets TDn2K watches showed positive growth, and even those weren’t exactly blockbusters. The Western market saw sales increase .1% and traffic decline -1.9% in August. As Fernandez said, the toughest region was in the path of Hurricane Harvey’s endless deluge. For the whole month, the state saw sales dip -5.2% and traffic slip -7.0%.

Both trends continue what BDO recently revealed from its Q2 aggregate of public-company results. In the most recent data release, the consulting firm reported a .2% dip in same-store sales. Pizza was the bright spot yet again, as same-store sales in the segment were up 3.5% according to BDO. That was driven by Domino’s 12.6% comp growth—its 11th consecutive quarter of growth.

Both research firms saw mixed results in QSR and fast casual. TDn2K saw market share continue to flow into both segments, but the latter saw some uneven results. BDO reported that the public fast-casual aggregate same-store sales declined by 1.7% overall even with Chipotle rebounding with a 12.5% surge in comps. Habit Burger also ticked up by .5%.

Industry consultant Malcolm Knapp said fast-casual kept growing, despite some structural challenges. 

"Comps are way off, we’re tracking 4-5% negative and a spread of 7% between comp and all-store. So they’re still adding units," said Knapp. "It’s very much like the early days of fast food where you grow as fast as you can and hope the other guy dies."

Casual diners … well, at least they have some company these days. They did, however, benefit from the Mayweather-McGregor fight. The sapped $450 million out of the economy with 4.5 million pay-per viewers paying $100 a pop. Those viewers, their friends, neighbors and all sorts of hangers on modified their plans because of the event, according to TDn2K. For some, that meant heading to restaurants with a sports theme, drawing market share for the period from fine diners and upscale casual.

Going forward, it’s more of the same, according to Joel Naroff, President of Naroff Economic Advisors and TDn2K Economist.

"The economy expanded moderately in the summer, though the hoped-for acceleration didn’t occur," said Naroff. "Job growth was decent but nothing great. Indeed, for the first eight months of the year compared to the same period in 2016, job increases were about 10,000 per month lower. That has translated into modest income increases, especially when adjusted for inflation."

He said consumer spending power remains limited, and is further limited by weather. Gas prices are also surging as oil-producing regions dry out. Naroff said normal growth may not come back until early 2018, and it will likely be the same slow pace of GDP growth seen in the last six years.