US Restaurant Industry Suffers Worst Collapse Since 2009

Tyler Durden's picture

What tentative hope had emerged for a rebound for the U.S. restaurant industry at the start of the year, was doused last month when in its February Restaurant Industry Snapshot, TDn2K found that "Restaurant Sales and Traffic Tumble in February" and reported that same-store sales fell -3.7% in February, with traffic declining -5.0% . It did however leave a possibility that things may turn around as a result of the prompt disbursement of withheld tax refunds in the month, which it suggested may have adversely affected sales and traffic.

Alas, that did not happen, and restaurant struggles continued in March as sales and traffic again declined year-over-year: same-store sales were down 1.1% while traffic dropped 3.4%. March results were disappointing for an industry desperately trying to reverse performance trends; with sales now negative in 11 out of the last 12 months, the longest stretch since the financial crisis. There was a modest improvement sequentially, however, and while still negative, sales improved by 2.5% points compared to February as traffic rose marginally by 1.6%.

Source: TDn2K

Explaining the sequential "improvement", Victor Fernandez, executive director of insights and knowledge for TDn2K, said “March sales were expected to be somewhat better than February due in part to the catch-up of tax refunds that were initially delayed in February. In addition, the industry likely benefited from the shift in the Easter holiday, which fell in March in 2016. For the largest segments (quick service and casual dining), this holiday represents a potential loss of sales."

However, it was not enough: “The fact that sales were still negative in March given these tailwinds highlights the challenge chains have faced since the recession. Factors like restaurant oversupply and additional competition for dining occasions continue to take their toll on chain traffic.

As TDn2K further adds, with a same-store sales decline of 1.6%, the first quarter of 2017 was the fifth consecutive quarter of negative results. The last time the industry experienced a similar period was in 2009 and the first half of 2010, as the economy began recovery following the recession. Only this time the move is in the opposite direction. 

Furthermore, the first quarter of 2017 followed a very disappointing 2.4 percent sales drop in the fourth quarter of 2016, highlighting the difficult operating environment currently facing many operators.

Worse, same-store traffic dropped even more, or -3.6% in Q1, consistent with the average -3.4% quarterly declines experienced since the beginning of 2016.

The growth rate in check average continues to trend down slowly. For the first quarter of 2017, the average check was up 1.9%, somewhat lower than the average 2.3%growth reported for 2016. This is likely the result of brands relying more on promotions and conservative menu price increases in response to continual declines in traffic. It confirms that restaurants don't have even the most modest pricing power to offset volume declines.

On the other side of the spectrum, as has been the case in recent quarters, segments with the highest and lowest average check experienced better results. The strongest performance in the first quarter came from upscale casual, followed by fine dining and quick service. It is important to mention that fine dining and upscale casual are among the segments most negatively impacted by the shift in Easter.

Meanwhile, the worst segments in the first quarter were family dining and fast casual. Family dining concepts were also among the most negatively affected by the Easter shift.

A separate report from the National Restaurant Association found that its proprietary Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 98.8 in February – up 0.2 percent from a level of 98.6 in January, however this was the fifth consecutive month in which the Current Situation Index contracted (below 100), as  operators continued to report dampened same-store sales and customer traffic levels.

Furthermore, the NRA found that restaurant operators overall continued to report soft same-store sales in February, with results that were similar to January’s levels. 33% of restaurant operators reported a same-store sales increase between February 2016 and February 2017, while 51% reported a sales decline, a deterioration from January. Restaurant operators also reported dampened customer traffic levels in February.

Only 27% of restaurant operators reported an increase in customer traffic between February 2016 and February 2017, while 57% reported a decline in customer traffic. In January, 26  percent of operators reported higher customer traffic levels, while 54% said their traffic declined.

One notable finding in the TDn2k report was that despite waiters and bartenders being the fastest growing job category under the Obama "recovery", restaurant operators list finding enough qualified employees to keep restaurants fully staffed as a primary concern. This is mainly due to skyrocketing restaurant churn rates as current restaurant workers believe they can find better options elsewhere, only to return disappointed. Turnover for restaurant hourly employees as well as managers increased again during February according to TDn2K’s People Report. These rates are currently higher than they have been in over ten years and rising.

Making matters worse for restaurants, some are finding that only by  offering higher compensation can they retain workers. So even if wages have been increasing slowly in recent years, this is expected to change soon as the labor market continues to tighten. In fact, according to a recent survey by People Report, about 80% of restaurant companies reported having to offer additional financial incentives to attract candidates in tough recruiting markets. In most almost all cases, those incentives take the form of higher base pay. Who would have though that there is a shortage of line cooks and waiters in the US.

While many continue to seek answers in the pernicious tailspin in the US restaurant industry within the supply side - pricing, competition, layout - the reality is that the key variable may remain with demand.  As some have speculated, it could simply be the reluctance or inability to eat out when money is being inflated elsewhere, to cover higher cost-of-living increases in other areas, such as rent or healthcare, even as wages for large parts of the population remain frozen.

To be sure, restaurant spending is a thermometer for discretionary spending, which varies with how well consumers are doing, and it’s the first to react as Wolf Richter correctly points out. When consumers hit their limits, the first things they cut are discretionary items, such as eating out.

As such, the worst tailspin in the US restaurant industry since 2009 remains the biggest flashing red alert suggesting that when it comes to that invincible dynamo behind the US economy, the American consumer, things have not been this bad in a long time.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Larry Dallas's picture

I'm sure $15 minimum wage has nothing to do with this.

1980XLS's picture

Everybody deserves at least $15 per hr regardless of skills  (sarcasm)

Blue Balls's picture

When food inflation kicks in, and it has, restaurants always cut back on portion size and reduce the quality of the food they serve.  Pisses me off.  The meat is lower quality. 

$70 at Planet Hollywood for a veggie burger, glorified Cobb salad, and penne pasta.

The local steakhouse is into serving shoe leather now.

You just want to skip eating out until the J-Mafia is kicked out of power.

1980XLS's picture

It's not Food inlation.

 

It's the Food/Labor ratio in their Biz model.

 

The labor is just too damn high to make eating out the Value proposition it once was.

Mr. Universe's picture

Margins have always been thin in the industry 5 to 6% was a good number. In fact most die because they lack the #1 important revenue maker, the bar. A good bar and the owner will run a restaurant at cost. No liquor license? Be prepared to either live on premises or figure out some other way to pay the rent. Fast food, different story. Perhaps people are waking up to the fact that fast food  barely qualifies as food.

JRobby's picture

Done!

Cash Back, Zero down, 0% at the car lot!

Sears, Penny's etc. circling the bowl!

It's just fucking dandy!!

yogibear's picture

And consumption is 70% of the economy. There goes the 70%. Not talked about much anymore. Keep pulling in H1Bs corporations as they generally bring their own lunch and don't spend as much as the Americans their replacing.

countryboy42's picture

Most of it is neither fast, nor food.

Common_Cents22's picture

exactly, i have a great place nearby, has high quality food because the sports bar subsidizes the steakhouse food.    its the only sustainable combo in food.   other than a chick fil A, they are miracle workers in how they recruit and train quality employees.   they are killin it.

cbxer55's picture

Same for me, there's a Pelican's a mile from where I live that still cooks a hell of a steak, and large at that. And yeah, the sports bar is where it's at there.

Never One Roach's picture

Retail is wayyyyyyyyyyyyyyyyy down also. Latest estimate shows over 8,500 department stores will close down in 2017. Lots of future Baristas will flood the market to compete with refugees and [ex] State dept employees at Staruks.

"8 years of Democrat 'Hope & Change' has consequences."

~ Soweeto

cheka's picture

note the focus on same store sales - not overall sales.  close some restaurants and same store will be positive.  would have been nice to give another metric...like total restaurant sales.  but no

HedgeJunkie's picture

There's mexican place down the trail, about a mile or so, that also has a bar (of sorts) they serve booze.  Couple of certified wetbacks own the place we go so often they gave us T-shirts to wear when we go there.  When we forget they ask where our shirts are.  I don't order, I sit down and they bring an MGD and put in an order for beef* enchiladas.  Wife gets a strawberry margarita, whether she wants one or not.

They're in this mostly abandoned three sided square of stores.  In the middle entrance is a small mexican meat market that we make a point to use when bulk buying.  Every six months or so well go down to it and order about $1,000 in various meats and cuts.  They have not disappointed us, yet.

There was a mom'n pop, 'scuse me, madre y padre produce store down a ways further, but their rent was too damned high and they fizzled out.  Now getting produce from farm stands as available.

Support your local business before you live in a true ghost town of corporate monopolies.

* More of a mystery meat.  It ain't pork and it ain't chicken.  I often tease that it's actually goat, mule, horse or road-killed coyote.

Mr. Universe's picture

That makes sense because unless they are getting commercial grade meat (very unlikely) it is the same quality that every other outlet has because 4 firms control 80% of the beef market. Similar numbers for pork and chicken. I have made it a point not to use these sources whenever possible as you are feeding the beast. However if you must, local is the way to go.

BeanusCountus's picture

Actually, labor cost is not the problem. It is always manageable with... volume. Declining same store volume is margin buster. And alcohol as part of the equation continues to struggle (who can afford a $5000 ticket?), despite uber.

And point taken on quality from you and others. Make a good product, you can't keep em away. The local dives are famous for it.

Zorba's idea's picture

Having spent 40 years in wholesale Foodservice Distribution, Discretionary income, or lack of, is a far greater adverse effect. Absent real wage growth (adjusted for inflation) amongst most income classes and besieged households navigating the reality of "Main Street inflation" driving every aspect of living expenses, with USA! Healthcare literally consuming any modest incremental wage gains for most, are long term threats to a mature and crowded Restaurant Industry. For further context, checkout the numerous consumer indexes which reveals america's consumer based economy is not only fatigued but under attack from a government that has spawned 1000's of corporate pirranah furnished with every nefarious legislative advantage money can buy along with mounting governmental regulations upon their favorite target...the middle class/ small business...the only turkey at the Turkey shoot. Absent real wage growth, more will adapt to the " less is Less" phenomena of an insolvent government.

Common_Cents22's picture

i had a food mfg company and sold to distributors, man they always had a tough gig.   you must be legend lasting 40 years in that biz!!

WTFRLY's picture

Blue Balls has hit this one out of the park

yogibear's picture

Spot on.

Restaurants have become Outrageously expensive for the middle class.

Noticed doubling of prices while quality has declined. 

Mr. Universe's picture

Real quality has mostly never existed in the vast majority of restaurants.  A few here and there might use local, organic fresh ingredients. However most rely on the big truck delivering lots of frozen, packaged and canned goods. Back in the day, a boat captain would send his brother around with local King Salmon on the back of his truck. Legally caught, but not sold through "channels", we would usually buy 2 or 3. So fresh I could make great Grav lox. The SF Bay afforded some unique opportunities for local produce if you were a chef known to be friendly to visitors. I cooked (and ate) quite a bit of locally caught abalone caught by a friend of the owner who brought it to us to be cooked "right". You would never ever see it on the menu (along with the pheasant and venison I've cooked) unless you were one of the owners pals, or me.

vealparm's picture

Yup.......$14.00 for a cheeseburger/fries/coke is ridiculous.....$11.00 for two eggs/potatos/two strips bacon/toast/coffee is ridiculous. Restaurant price inflation over the last 10 years is off the charts. In my area most restaurants are chains and the food is crap. If you want "real veal parm", fuggetaboutit.

Mr. Universe's picture

When compared to a milk fed scallopini, veal parm seems a bit of a waste. However it is the best breaded meat dish I can think of when done right. Nowdays, it's chicken parm.

El Oregonian's picture

"and the first half of 2010, as the economy began recovery following the recession."

Are you kidding me!?! Began recovery following the recession? What a shill this useful idiot is...  pffft.

JRobby's picture

He sucks up the Kool Aide among other things.

Tijuana Donkey Show's picture

This steak still has marks from where the jockey was whippin it.....

Mr. Universe's picture

Drive past the Harris Ranch feedlot in Coalinga a few times every day for a month and you will never eat factory beef again.

how_this_stuff_works's picture

Hit up the local Tractor Supply today. Picked up 48 Cornish cross chicks. Last year was the first year I tried raising meat chickens. Really, the difference between home raised and store bought is unbelievable. Don't know if I could go to buying chicken from a store.

A lotta work, yes, but worth it I think.

Mr. Universe's picture

Great, how long until harvest? 8-10 weeks? I know my eggs are the best you've ever had, but we have yet to add in meat birds. I really need to move and get a real farm. The only problem is where, I can't stand snow and California is killing me.

swamp's picture

And then pay tax and even in SF PAY GEALTH INS. IN TGE BILL TOO AS EXTRAS

Lumberjack's picture

ACA really hurt several restaurant owners I know.

how_this_stuff_works's picture

ACA has hurt everybody pretty much.

Never One Roach's picture

1) Oamacare;

2) wage freezes;

3) wage cuts;

4) rising cost of everything essential;

5) property tax increases every year.

We used to go out a couple of times a week, usually on the weekends. ut now that dinner has almost douled at most places, forget it. Become a good chef instead. Ex: Chinese dinner used to cost ~ $7-8 pp where I live. Now it's easily $12 and up. And that's without any alcohol. Not even a eer and no soft drinks either.

8 years of Oamanomics decimated the middle class like my family.

cherry picker's picture

In places where waiters get a very minimal salary or none at all, like Baja for example where minimum wage is around $5-$6 a day, a 20% tip keeps the waiter and his family alive.

Why should a tip be necessary at all if they pay $15 minimum wage?

I wouldn't pay a tip.  If thy don't like it, I will never return.

Abbie Normal's picture

Except in places with minimum service charges, tipping has always been optional.  It's your choice to tip and it's the waiter's choice to try harder next time.  BTW, if the complaint arises due to the actions of the host (long wait times for a table) or the cook (bad food preparation), then please don't penalize the server.

cherry picker's picture

If a customer is making $15 an hour and descides to go out for a meal on occassion, why pay the server  who makes as much as you a 20% tip for taking an order and bringing food to the table?  It isn't rocket science and is easier than many other jobs to perform.

No one in any other trade gets a 20% tip for going to work.  At one time, servers got shit for wages and they relied on tips to survive.  If the server doesn't like it, get another job.

Funn3r's picture

I just spent a week in the US and ate out quite a lot. Overall not a good experience because

  •  average food
  • no interest shown in what I actually wanted, more like "sit there and here's what we got" 
  • high prices (although as a Brit paying in crashed pounds I'm not sure where to put the blame for this) 
  • madly entitled waiters demanding huge tips for nothing at all. OK so they brought food to my table, that's their job right? 

The restuarant industry really needs to take a cold look at itself.

 

JuliaS's picture

We have as much choice when it comes to restaurants as we do with our presidential candidates.

Miskondukt's picture

My older brother is in the F&B industry and has been a big wig for them elite type resorts for quite some time now. He was recently bragging that he was "damn proud" to ... get this ... "distribute waiters' tips down the line to back of house employees" so they could cut down waiter wages, boost low wage/unskilled wages and make the break between tip-dependent persons and ... managers ... larger. He said it wasn't fair that college degreed, debted managers were making less than waiters.

My response, then tell them to go suck ass and wait on those diners instead or ... ditch the fucking hospitality degrees! What a fucking waste. 

Rant tangent:
I worked in that industry for less than two years when I was 18, left two weeks after an imported manager from Greece mocked me saying, "what, you think you can be a manager?" I promptly told him to fuck off and got called in to the F&B Dir's office for a talk down (wasn't fired cause I fookin redesigned their Sunday brunch and they immediately saw reservations fill afterwards, plus I got the rest manager in the Fine dining magazine for said buffet). Two weeks later I was working F&I at a car dealer, two years after that I was managing the department.

Shizzmoney's picture

But Hillary said America Is Already Great

Bill of Rights's picture

The food and service sucks....I'd rather buy and cook it myself at least Ia know what I'm getting...

BeanusCountus's picture

With ya. Bought a 9lb angus rib roast for easter, $54 on sale. Special occasion. Baked potatoes with sour cream and bacon bits, tossed salad. Couldn't have been more than $70, all in. 9 people, less than $8 person for a special dinner. Restaurant wants at last $20, plus tax and tip. Why do it?

Never One Roach's picture

I love pork center loin roasts so I make that with veggies and potatoes at least once a month.

Sometimes I have a few friends over, even the Jewish co-worker comes over. I have to laugh when I ask him about the pork thing and he smiles and simply says he's a "Reformed Jew."

We all have lots of fun and enjoy the food! Better then any restaurant imo.

swamp's picture

Yeah especially when you didnt shop cook or clean.

yogibear's picture

What used to cost $8 is now $17.

A hamburger that used to be $2.75 back in 2009  is now $6.

So restaurant prices have  doubled. While wages across the board have not.

 

gatorengineer's picture

Haven't doubled, let's try haven't even held in inflation adjusted dollars......

Mr. Universe's picture

How about my Mom would give me 50 cents and I could go to the brand new McDonalds and get a burger fries and shake. 1968. So tell me about inflation, wages and taxes again?

Cabreado's picture

1968: .50 = 2017: 3.50

 

Abbie Normal's picture

Nowadays, $3.50 will get you a burger, fries OR A shake.

techpriest's picture

And lets not forget the activists who helped bring it about:

https://www.youtube.com/watch?v=-V3rEvZY9nI