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Restaurant Recession Meets February Debacle

by Wolf Richter, Wolf Street:

What does inflation have to do with it?

Restaurants should have done well in February. The economy created 235,000 jobs, according to the Bureau of Labor Statistics. The big gain was ascribed to the weather – the warmest February in 100 years. Weather-sensitive industries, such as construction, went on a hiring binge. The exuberance should have led to activity at restaurants. Compared to Februaries when people stayed home because polar vortices marauded much of the nation, this time, the weather invited them to head out.

But no. Folks stuck in the real economy and not benefiting from the surge in stocks, or those who’re paying with their last dime for the surge in housing costs, they’re cutting back on restaurant meals.

Same-store restaurant sales in February dropped 3.7% and foot traffic dropped 5.0% from a year ago, according to TDn2K’s Restaurant Industry Snapshot.

This comes after a January report, from which emanated for the first time in a while some sort of gloomy optimism, titled with delicious irony: “Flat Sales, Welcome Change for Restaurant Industry in January.” It went like this: “While same-store sales growth was flat (zero percent) in January, it represented a welcome break from the ten consecutive months of negative sales growth experienced by the industry.”

That gloomy optimism has now too fallen by the wayside, and it was “not a turning point in declining industry performance,” the report now specified.

Over the last three months – with the gloomily optimistic January in the middle of it – same-store sales fell 2.7% and foot traffic 4.7%.

“A macro view leaves little room for optimism,” the report said, whose data is based on sales from over 26,000 restaurant units and 145 brands, representing $66 billion dollars in annual revenue. “February’s results were among the weakest in the last four years,” it said.

The weakest region was the Southwest, where same-store sales plunged 7.6% and foot-traffic 9.2%. The least weak region was California where same-store sales edged up 0.5% and traffic fell “only” 2.3%. Across the nation, sales rose in only 8 markets and fell in 187 markets. A very broad-based decline.

Despite rising inflation, with headline CPI up 2.5%, guest checks inched up only 1.2% in February from a year ago, “the lowest rate in four years.”

By contrast, over the prior six months, checks had increased on average 2.3% year-over-year. February’s below-inflation increase was a function of:

More conservative pricing
Customer trade downs
And discount promotions

Note the second item, “customer trade downs” People bought cheaper menu items than before. One of the common reactions to inflation, when price increases are not met by sufficient wage increases. You still go to your favorite restaurant, but you trade down.

All segments experienced a decline in the rate of check growth last month. Casual dining and quick service were virtually flat compared with the prior year. The bar and grill sub-segment actually experienced a drop in average checks versus 2016.

Read More @ WolfStreet.com

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