Worst Restaurant Tailspin Since 2009/2010 Crushes Lower End

Tyler Durden's picture

By Wolf Richter of Wolf Street.com

     “The hope that consumer and business spending will surge is probably just that, hope.”

      - Joel Naroff, President of Naroff Economic Advisors and TDn2K Economist

So another chain restaurant is “preparing” to bite the dust. Ignite Restaurant Group, which operates the Joe’s Crab Shack chain with 113 locations and the Brick House Tavern chain with 25 locations, and used to operate the Romano’s Macaroni Grill chain with 150 locations until it sold it in 2015, is preparing to file for bankruptcy, “people familiar with the matter” told Bloomberg.

In the quarter ended September 26, 2016, the last quarter for which the company bothered to release an earnings report, same-store sales fell 6.8%; total revenues plunged 10% to $120 million.

A liquidity problem turns into a solvency problem: It had $729,000 of cash and about $26 million of “available borrowing capacity under its current credit facility.” Not exactly a lot, considering that the company lost $15.2 million in Q3, up from a loss of $4 million in Q3 2015.

It had $179 million in liabilities, including $113 million in long-term debt. It shares, which had traded as high as $19 in 2013, have consistently trended lower since, became a penny stock last year, and are now just about worthless (2 cents).
 

For chain restaurants, it's really tough out there.

Industry-wide, same-store foot traffic fell 3.3% in April year-over-year. For the past three months, traffic is down 3.9%. Same-store sales in April fell 1.0% are down 1.8% for the past three months, according to TDn2K’s Restaurant Industry Snapshot.

Food sales and alcohol sales both were down. As traffic dropped, the average check increased 2.3%, less than the rate of inflation.

Q1 had been the fifth quarter in a row of year-over-year sales declines. Now everyone is hoping Q2 will be different. But April’s numbers aren’t auspicious. And no one wants six quarters in a row of this. “The last time the industry experienced a similar period was in 2009 and the first half of 2010,” the March report had pointed out. April has moved the needle further in that direction.

There were some regional differences:

  • The least bad region was California where traffic fell only 0.7% and same store sales inched up 1.9%.
  • The worst region was the Southwest where traffic dropped 4.9% and sales 2.7%.
  • Sales fell in three-quarters of the nearly 200 markets.

The segments with sales increases:

Fine dining (includes some expensive chain steak houses) and upscale casual. They offer a “more experience-based dining proposition for a less price-sensitive consumer.” So the folks with money are still spending it on restaurants. Family dining also showed sales increases.

The segments with sales declines – the lower end:

Fast casual and quick service – “After years of positive growth and being one of the top performing industry segments, quick service has experienced a downturn in 2017,” the report said. And then there’s casual dining for which “struggles continue although the rate of decline has lessened somewhat,” with average same-store sales in 2017 down 2.9% compared to the 4.1% dive in the second half of 2016.

The report, which is based on data from over 27,000 restaurant locations and 155 brands with $67 billion in annual revenues, gingerly blamed the Easter holiday because it occurred in April rather than in March (as last year). For the largest segments of the industry – quick service and casual dining – the Easter holiday likely hurt sales. But the smaller segments – fine dining, upscale casual, and family dining – “appear to have been positively affected by the shift in the Easter holiday.”

Under this theory, March should have benefited from the shift of the Easter holidays. But in March foot traffic fell 3.4% and same-store sales fell 1.1%. And in February, foot traffic plunged 5.0% and same-store sales 3.7%. The debacle was blamed on $65 billion in delayed tax refunds from the IRS. But those refunds started gushing out in the second half of February and were caught up by the end of February, and so March and April should have been, and were expected to be, the months when all this cash would suddenly show up. But no.

Last week's Bank of America credit and debit card spending report showed the same: spending at food service and drinking places has crashed over the past two years, and is fast approaching the X-axis.

There’s hope, however. Of sorts. The report pointed out that “sales started softening considerably” last June. “This translates into easier comparisons when calculating this year’s sales growth rates.” So the numbers in the second half this year might still be crappy, but because the second half last year was so terrible, the year-over-year comparison might look a little better. That’s the hope.

TDn2K’s economist Joel Naroff blamed the slow growth of the economy in Q1 on “mediocre” consumer spending. And this might be an issue going forward: “The rising household debt load is likely to suppress consumption, including eating out.”

Ah, consumer debt, after years of loading up on it, is now hobbling discretionary spending. Who would have thought? And he goes on:

“The hope that consumer and business spending will surge is probably just that, hope.”

 

“That said, the economy should rebound this quarter but it looks like we are in for another year of 2.25% growth [by comparison, in 2016, the economy grew only 1.6%]. While that pace is not likely

 

to make anyone happy, it is enough for the labor market to tighten further and the Fed to continue raising rates, possibly as soon as June.”

And higher rates would be the next skillet to drop on our over-indebted chain restaurants. But they’re coming. Inflation pressures further up the pipeline rose the most in five years.  Read…  The Fed Gets another Reason to Raise Rates and Unravel QE

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Secret Weapon's picture

OBamacare insurance premiums eating your lunch so you don't have to.

Blankenstein's picture

That and house prices, rents and property taxes that are much higher than what the underlying fundamentals dictate, leaving little spending money left over.

philipat's picture

So where are all those "Waiters and Bartenders" jobs coming from? Are they entirely fictitious to support the story that the economy is booming?

Anon2017's picture

Don't forget rising electricity rates and rising water rates. 

serotonindumptruck's picture

Just harvested about ten pounds of sugar snap peas from our garden.

Thawing out a pound of bacon from the freezer and looking forward to some of the best split pea soup this side of the Atlantic.

Who wants to eat out when the food is so much better (and less expensive) when prepared at home?

Zarbo's picture

And you know exactly what goes into it.

ElTerco's picture

Restaurant food quality and quantity has taken a major nosedive over the last few years, probably in an attempt to compensate for higher minimum wages and rising lease rates. Bottom line though, the restaurants are driving themselves out of business with declining quality.

vealparm's picture

+100 El Turco...

Smaller portion sizes while at the same time reducing the quality of your provisions and then raising prices is not a good recipe for increasing sales and profits......I really hate eating at chain restaurants. Their corporate lords probably never cooked with a saute pan in the lives.

Falling Down's picture

+1

More 'hidden inflation'.

foodstampbarry's picture

 

Broke ass Niggas ain't got no cash to spend.

FUBO's picture

No cash to spend never stopped a broke ass nigga before.

Silver Savior's picture

It's not that I am broke ass. I want to save my money so I won't BE broke ass.

Consuelo's picture


  • "The least bad region was California where traffic fell only 0.7% and same store sales inched up 1.9%."

 

Lines everywhere in the Bay Area.    Ad-$revenue (FAANG) economy (and all the downstream feeders...), never done better - not even at the 'peak' in 2006/2007.   In fact, the 'records' set in this area during the housing bubble were blown down in 2012 like an F-5 tornado.   Growth out the wazoo like nothing ever seen before.    

All built on:

- 'searches'

- 'streaming entertainment'

- 'sending pictures' of what you ate, hither & yon

- 'buying shit' online

- and a hand-held device which acts as the medium to peform said critical functions of everyday life...

 

Now you tell me, what could possibly ever go wrong, given that backdrop...?

nightshiftsucks's picture

Just wait for the minimum wage hikes to start,Ca. will go down just like everyone else.

Anon2017's picture

Get rid of ad pollution on your desktop or smart phone by using the Brave browser. "Sponsored articles" and "From around the web articles" are the worst, peddling snake oil health remedies and worthless investment newsletters.    

Sonny Brakes's picture

Restaurants have been helping themselves to more and more of our dining dollar and suddenly we've come to the conclusion that it won't be long before all we'll get when we do dine out is a picture of what the meal might have looked like.

wmbz's picture

The segments with sales declines – the lower end:

Far to many chain food stores out there, pumping out just plain shit food!

Just traveled out to St.Louis and back 1500 miles round trip. Only stopped for fuel and restrooms. We always pack a cooler. Food on the road is as bad as it gets. Unless you like to consume crap.

We ate out twice with the in-laws. Up scale places that were packed. No fun for me, hate paying $200.00 to $300.00 tabs, just not worth it in my opinion.

vealparm's picture

I'm with you wmbz 110%. We also pack a cooler when we travel. But I do have to fight my wife on this issue. She would eat out every single day at these crappy chain joints if I agreed to go with her but I usually turn her down. She eats out with her cronies 3-4 times a week, while I eat at home.........I occasionally humor her and go out to eat with her. The best chain we've found is Black Bear Diner, actually decent food. I think they are all west of the Rockies.

hound dog vigilante's picture

 

restaurants are basically flat/down since 2011, yet we've supposedly added 150mil.* waitstaff & bartender jobs in that period... something doesn't pass the sniff test, either the jobs numbers or the restaurant numbers.

 

* slight exaggeration; point still stands

spiral galaxy's picture

Sniff this! Asshole politicians implementing a food tax of some 10+ percent on your food/bar tab! Then there's the mandatory gratuity north of 18 percent for 'groups' - usually exceeding 4 people. Then there's the copy cat menus of super fried cheese stuffed over salted entrees with French fries and buttery fried butter. .....with overpriced garbage wine/beer. Stay at home. ......and don't eat at the ballparks, for the complete gouge experience:-(

Mr.BlingBling's picture

And half the time, the food's all coming out of a Sysco truck.

True Blue's picture

Half?

'Sysco' and 'US Foods' control between them 75% of the restaurant food supply chain in the US; which is why their proposed $3.5 billion merger in 2015 was blocked.

rejected's picture

It's the restaurants own doing. Example: A restaurant we frequented had decent food and service. i ordered the fajita's. You could tell they had cut up the chicken breasts and grilled them Last time they served SAMS Wholesale Fajita strips which are just processed pressed chicken with fake black grill markings. Throw it on the plate and nuke it for 2 minutes. Tasted like shit. Where it used to take 15 - 20 minutes it now only required 5 minutes. Most all restaurants are doing this. Then they expect a 20-30 pct tip. Mind boggling! 

We go to a restaurant for 'cooked food' and a enjoyable experience. When we want fast food we go to McD's... (which ain't often). Now we just eat at home.

Felix da Kat's picture

New technologies will continue to disrupt the old paradigms. Look at what Bezos/Amazon has done to both national and mom-and-pop retailers. Bezos has a reported net worth of 81,000 millions ($81 Billion). That is wealth that would have gone to many of the mom and pop retailers and share holders of failing companies. This trend will not change because it is a tremendously conveniant form of commerce for all parties (an EMP attack will shut it down only temporarily). Other than those under 30 who still thrive on "seeing and being seen", there is little practicality to a visit to the local mall or retailer.  The advent of robotics along with increasing ease of internet useage will continue to disrupt American business models for decades to come. There will be fewer jobs to go around. Talk of the UBI (universal basic income) will gain momentum, more will become dependent upon gov't service, the elites will continue to rise in power ... the great transformation is here. If you project out to ten and 20 years from now, you can see where this is going... it will be possible to live a fully engaged, fulfilling life within the confines of one's own home without ever getting face-to-face with a stranger. If you need something, a mailperson or drone will drop it off to you. It will become a time when Americans are increasingly estranged from one another. Currently, 40% of Americans are NOT of white, European ancestry, which I think is helping to fuel the desire to "Cocoon" away from the public. The prevailing attitude is becoming, "Why hassle with people's BS; I can just relax at home and be at peace". America is unwittingly transforming itself into 100 million fiefdoms. This is not a picture of unity, but of division. Those with adaptability skills for this new paradigm will do well.

serotonindumptruck's picture

I hear ya, Felix.

We live in a fairly rural subdivision and yet, we don't know most of our neighbors. It seems as if many people would prefer to shut themselves away from the outside world, and confine themselves within four familiar walls. Any attempt to meet these people, outside of a passing wave as they drive by, seems futile.

I'm not going to walk up on someone's porch whom I've never met and try to introduce myself, even if they live two houses down from me.

Many of us out here live on at least two acres of land, yet surprisingly few of my neighbors seem to have their own gardens for growing food. We have established a massive garden (about 4,000 square feet) and we would be more than happy to share our produce.

Most people seem to prefer to be left alone, and it can be difficult to make first contact.

ogretown's picture

Bravo. I do not have my own garden and to be honest have no inclination to grow my own food. But I also have a system in place where my (organic) foods are prepared and frozen twice a month and dropped off to me - along with a couple of dozen eggs from chickens who eat better quality food than most of the globe's human population.  And I have recently cut a deal that allows for the delivery of home-made Kombucha, loaves of bread and homemade pizza. I pay for this convenience with either fiat or junk silver and am eating better and cheaper than any king.  My mountain grown coffee comes to me from Central America in 110 pound bags which I roast as needed. Just about everything else comes to me via Amazon Prime. As to interacting with most people - almost zero desire although I do make time for my support staff and grill them on what they are hearing on the street.  My cleaning lady has proven to be an excellent source when it comes to street level trending.  Keep up the good work with your garden.

Sorry_about_Dresden's picture

You get green coffee on Amazon, or ebay?

ogretown's picture

No. I receive one of those great big white bags of coffee through a friend in Nicaragua. His family has been growing coffee since 1900 and was able to survive the purging of foreign coffee plantations during the Somoza regime and is still going strong today.  Green beans as you may know can survive quite nicely for a couple of years if properly stored.

Sorry_about_Dresden's picture

I don't know much about anything, except I need to create a job for myself, no one is hiring 50 year old chemical engineer w/ 20 years of H2O treatment experience. Thought about opening a small coffee roasting operation, and sell to independent coffee shops, perhaps open a used book store/ coffee shop, using old shipping containers, somewhere down the line. Have a fresh produce line so I can take ebt cards :).

kareninca's picture

Just what the world needs, one more cretin who can't manage to exist without a "support staff."

You know, any moron can buy things.  It doesn't take any brains or talent to buy stuff.  Someone who can grow food or bake bread or raise chickens or brew Kombuca is actually interesting and useful.

Silver Savior's picture

Well I for one don't really want to indroduce myself to anyone. I usually just do my own thing and want to be left alone. I live right in town and the neighbors across the street never talk with us. Maybe once a year by chance like if our mail gets mixed up but nothing more. They are just a stone throw away too. It's not like in the movies where you have great neighbors like Mr.. Wilson.

serotonindumptruck's picture

Exactly.

I mean yeah, I could walk up on some stranger's porch with a few pounds of homegrown tomatoes to offer as a gift, but if those people don't know me, then prudence dictates that they can't trust me.

They would likely throw those delicious, mouth-watering homegrown tomatoes into the garbage.

That is unfortunately the world we all live in.

Anon2017's picture

Get a dog and walk it every day. You'll get to meet lots of your neighbors that way.

Hanomy's picture

Since you mentioned  UBI, I like to invite you to visit   Hanomy.com   and download    Hanomy Manifesto.   It's 112 pages document of a new social, financial, and political system for the whole world.  It turns the current concept and practices of money upside down.  National debts are gone, interest charges are gone...  Just have to read it I guess.   If it is something you agree, please help me spread the word.  Maybe the right ears and eyes will see it and it will go somewhere.

Highlights of Hanomy:

• Fundamental human needs met throughout life’s existence
• Basic human rights observed everywhere
• Sovereign debts worldwide are settled and eliminated
• Upheld liberty and freedom
Financial contributions drawn from a portion of idle/unutilized money
No taxes on income, profit or spending
• Interest charges and usury practices abolished
• Power of money creation where it belongs - the people
• An end to the fractional reserve system
• Upheld free market principles (true capitalism but with social responsibility)
• Decreased or dissolved inflation and hyperinflation
• Reduced income inequality
• An end to corporate welfare
• Advanced technology benefiting humanity
• Freedom of time for quality of life and caregiving
• Prohibited conditions for authoritarianism
Preserved sovereignty and respected borders
• An end to “modern day slavery” (this includes you)
• Improved care of the environment and world resources
• A world we’re proud to claim and pass along

Silver Savior's picture

All I have to say is people are getting lazy as fuck. 

DingleBarryObummer's picture

how does that dump CheeseCake UnsatisFactory stay open?  It's like 15 bucks for a plate of pasta with 5 little shrimps.  decorations are tacky as fuck, it's like plastic made to look like stone statues.  HOT MONEY FROM THE FEDDDDDDDDDDDDDDDDDD

I Write Code's picture

CAKE is still doing OK even in the down sector.  Yeah the decor is just this side of disco and the food on their main menu ALL has too much fat and a ton of salt, well amost all there are a couple of things that are OK, and then they have a separate lower-calorie menu if you're finicky but I doubt it matters much.

But they are very tightly managed, logistically and operationally, that's how they do it.  And the food is pretty good for a chain, better than most local restaurants around the country, that's how they do it.  There are local places that do better, of course, but few have the tight controls that make it repeatable unless they are far more expensive than CAKE.

I think CAKE needs to modernize, spin off a new chain (or two) that is more up to date and addresses more segments, down-market or up.  They do have "Gran Luxe Cafe", but it's 90% the same stuff I don't know why they bother.  But they've been locating preferentially in malls for several years, and now the mall traffic is falling off almost everywhere, not really their fault, in fact they may help anchor the malls they are in.

Anyway they stand out in the sector, and mostly for good reasons.

Silver Savior's picture

It's really quite simple. I don't know what will happen tomorrow so I choose not to spend like this anymore. And to tell you the truth going to a restaurant can be a pain in the ass. You always get seated next to weirdos who look at you when you are trying to eat. Then the waiter asks if everything is ok when you just had a mouthfulll of food.

You also don't know if Beavis and butthead are cooking back there if you know what I mean. 

serotonindumptruck's picture

Do you mean to say that you don't enjoy lung-butter and ass-cheese garnish with your meal?

Just don't piss off your server, and make sure you let them know that there will be a 50% tip for good service.

Government needs you to pay taxes's picture

If you get lung-butter and ass-cheese consider yourself lucky.  The chef COULD have chosen your plate for a little of the 'special sauce' . .

Funn3r's picture

50% is a little stingey don't you think? 75% is the new normal. Why not, they already max what they can get away with, why stop?

Sam Spayed's picture

The obama malaise continues.  It's hard to get a dead mule to stand up and walk.

Silver Savior's picture

But you do have to pitty the restaurants when stuck up people send their plates of food back for no reason. I wonder if the food gets recycled onto someone else's plate? Most likely. 

I have sat by stuck up people like this. Heck, give it to me. I will eat the damned thing. It looks pretty good! I guess some people like to feel more important than they really are. 

Fahq Yuhaad's picture

They probably sent the meal back because the fries were the same color as Drumpf's hair.

Fahq Yuhaad's picture

My last visit to McDonald's took place in 2013 when I read the salad dressing package and was informed that the product contained 15% sugar.

Silver Savior's picture

There is always the Roach Coach.

Rentier88's picture

Maybe fast food and low end restaurants, but not pricier places they are still packed all the time where I live.