Back To News/PR Index | | End of 2016 Sales Plunge Restaurants to its Weakest Month in Three Years | “To put the second-half sales downturn into perspective, the only two quarters with comp sales worse than -1.0 percent during the last five years were the -1.1 percent in the third quarter and the very soft -2.4% results in the fourth quarter of 2016,” said Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K. “Furthermore, restaurants have now posted four consecutive quarters of declining year-over-year sales. The last time the industry experienced a year with all negative quarters was 2009, when the economy was suffering the effects of the great recession. This was also the last year in which we experienced a quarter with a sales decline worse than -2.0 percent as we did for the fourth quarter of 2016.” From an annual perspective, same-store sales growth for 2016 was -1.1 percent. This is a 3.1 percentage point drop from the growth rate in 2015, and the poorest industry performance since the recession. Conflicting
Consumer Spending Trends
Traffic
is Still the Problem
At -4.6 percent, the traffic decline in the fourth quarter was also troubling. The last time the industry faced a similar result was during the third quarter of 2009. Average
Guest Check Growth Slows
On a two-year basis, 2016 sales grew by 0.9 percent compared with 2015. Although positive, the change is a direct result of significant increases in guest checks driven primarily by price increases. “Same-store traffic dropped by -4.1 percent over the last two years,” commented Fernandez, “but average guest checks grew by a robust 5.0 percent over the same period, lifting sales growth. Black Box Intelligence™ research revealed prices have increased on average between 4.0 and 5.0 percent over the last 2 years. Without those price increases, many companies would have a very tough time maintaining sales growth and margins. However, the question remains: can brands continue to raise prices at the same pace in an environment of declining traffic and increased competition from alternatives such as inexpensive groceries, a new breed of independents and home delivery?” Fine
Dining Leads Segment Performance
The weakest segments in December were family dining and casual dining. The year proved to be very challenging for casual dining; it was the bottom performer in ten of the months in 2016. Results were markedly worse for the “bar and grill” sub-segment of casual dining. “During
2016, consumers favored those segments on the extremes of average check
and it was the segments in the middle that were challenged,” continued
Fernandez. “The best performing segments based on both sales and traffic
were quick service, fine dining and upscale casual. In the case of same-store
sales, these were the only segments with positive growth during the year.
Yet, none of the industry segments reported an increase in their guest
counts during the year.”
After posting an average year-over-year growth in number of restaurant jobs over 3.5 percent the first half of the year, job creation slowed down to a crawl in recent months. Based on TDn2K’s People Report™, chain restaurant job growth was flat for October and November of 2016. Turnover for both hourly employees and all levels of management continued the upward trend in November that started at the end of the recession. Management turnover is particularly concerning. It has surpassed pre-recession levels and continues to rise. At the brand level, TDn2K analysis consistently links higher restaurant management turnover with lower sales and traffic growth. Rising labor costs are also top of mind for restaurant operators. In addition to the increasing costs directly and indirectly associated with employee turnover, nineteen states are scheduled to increase their minimum wage during 2017. Another factor that could have a considerable effect on costs during the year is the approved legislation regarding new overtime regulations. However, the new administration may provide a reprieve to the impending reclassification of employees and some potential mandated salary increases. Looking
Ahead
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 consumer insights and reveals online brand health. TDn2K membership represents 37,000 restaurant units, over 2.1 million employees and $65 billion in sales. They are also the producers of leading restaurant industry events including the Global Best Practices Conference held annually each January in Dallas, Texas. www.tdn2k.com Media
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