US Restaurant Industry Stuck In Worst Collapse Since 2009

Tyler Durden's picture

One month after we reported that the "restaurant industry hasn't reported a positive month since February 2016", we can add one more month to the running total: according to the latest update from Black Box Intelligence's TDn2K research, in June both same-store sales and foot traffic "growth" declined once more, dropping by -1% and -3%, respectively, extending the longest stretch of year-over-year declines for the US restaurant industry to 16 consecutive months - the longest stretch since the financial crisis - with sales rising in 45 markets while declining in 150 with Texas, the worst region in the US, suffering a 2.2% and 4.1% decline in sales and traffic respectively.

Source: TDn2K

As Black Box adds, "bad news is same-store sales and traffic growth were still negative in June and the second quarter of 2017; and year-over-year, same-store sales have been declining for the last six consecutive quarters."

While there was some offsetting "good news", namely that "June results were the best for the industry for both sales and traffic growth since January" - in other words a 3% decline in traffic is now spun as "good" -  it may have been due to a calendar effect and certainly was not enough to offset growing concerns about the relentless deterioration in the space.

“This is likely the result of a combination of factors,” commented Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K. “While economic indicators have been pointing to some improved conditions this year, the reality is that we are also lapping over some weak results in 2016 which make the comparisons much easier for the industry in 2017.”

More importantly, on a topic that is especially dear to the Fed's heart now that inflation has missed for 4 consecutive months, average guest checks grew at the same rate in Q2 as Q1, or 2.2%, still unable to offset the decline in overall traffic. What is concerning is that check averages have been growing more slowly since 2015, when the average check was up 2.8%, well above core inflation.

And in the biggest red flag for the Fed, Black Box' Fernandex confirmed that the Fed's fears about lack of pricing power, at least in the restaurant sector, are justified, as “brands seem to be reluctant to implement significant price increases given the current environment." Making matters worse, in order to boost traffic, "price promotions have been widely utilized, especially by struggling brands and segments” said Fernandez. “Average guest checks for the ‘bar and grill’ sub-segment of casual dining remain flat year over year for the first two quarters of 2017, while casual dining overall has seen its guest checks grow by only 1.2 percent.”

According to Joel Naroff, chief economist at TDn2K, while employment continues to grow at a robust pace, a disconnect has emerged as "consumption, meanwhile, has slowed and vehicle sales have faltered." This is also evident in the latest retail sales data which has been on a steady decline for the past two years.

... a fact corroborated by Bank of America's internal spending data:

In an effort worthy of a Fed economist, Naroff tried to spin that data, saying that "this is good news for other retail sectors, including restaurants, as credit growth is moderating. The rise in debt payments has funneled money from spending on other goods and services." Odd, it's almost as if he is saying that savings and living within one's means - two ideas that are anathema to any Keynesian - are... good. Still, he does admit that while the outflow from restaurants is ending, "an uptick in demand has yet to appear.”

Digging through the data, reveals that the decline is not uniform, and that affluent consumers are enjoying the recent promotional scramble, responding positively to those brands that provide a more experience-driven dining occasion. "Fine dining was the best performing segment based on same-store sales growth in the second quarter, followed by upscale casual. These were the only two segments with positive sales. They were also the top performing segments in the first quarter."

Here, too, a problem emerges because as the report admits, the ranks of the "affluent" are not growing: even those segments with positive growth in their same-store sales are doing so through increases in average guest checks and not through driving incremental guest visits.

In fact, all segments experienced a fall in their guest counts year over year during the quarter. The deteriorating traffic was attributed to increased competition for dining from within the industry (independent operators) and from other sectors (grab-and-go prepared food options, meal replacement kits, and other players like convenience stores and food trucks) which continue to grab additional share from traditional chain restaurants. The weakest segments based on second quarter results were fast casual and the ‘bar and grill’ sub-segment within casual dining.

Meanwhile, in a potential threat to the likes of McDonalds and Shake Shack, quick service, which was the top-performing segment in 2016 and was among the top three segments in 2015, is now struggling to keep up building on that rapid growth. The segment has now experienced three consecutive quarters of negative same-store sales growth, although one wouldn't know it by looking at McDonalds' share price.

* * *

Ironically, in addition to challenges from falling guest counts, the inability to pass through price increases, rising competition and declining overall spending, strong challenges continue to confront restaurants in both staffing and retaining enough qualified workers. We say ironically, because as we showed after the latest jobs report, restaurant/fast food/waiter/bartender hiring remains the only strong spot in the US labor market. As the chart below shows, starting in March of 2010 and continuing through June of 2017, there have been 89 consecutive month of payroll gains for America's waiters and bartenders, an unprecedented feat and an all time record for any job category. Putting this number in context, total job gains for the sector over the past 7 years have amounted to 2.4 million or over 14% of the total 16.7 million in new jobs created by the US over the past 89 months.

And yet, according to BlackBox, restaurant operators are pessimistic regarding the difficulty of recruiting in the upcoming quarters. According to TDn2K’s People Report, when it comes to finding enough qualified employees to staff the restaurants and retaining them once they are hired, the industry is still facing an uphill battle with rolling-12-month restaurant hourly employee turnover increased again in May. Turnover for restaurant managers is also on the rise and is tracking at a 10-year high, with brands reporting that the majority of applicants are coming from competing restaurants.

And while one has yet to see it emerge in average hourly earnings, the result is - at least according to Black Box - pressure on restaurant wages, "which are expected to increase in the upcoming quarters." Almost 75% of restaurant companies report that they are offering higher wages as an incentive for potential employees.

Meanwhile, as the restaurant industry is stuck in its longest slump since the "second great depression", US consumer spending continues to decline, with declines not just across the chain restaurant space, but also at food and beverage stores...

... hammered by rising healthcare, housing and college costs, even as the broader US population is now burdened by a record $1.4 trillion in student loans.

In such an environment restaurants - from mediocre QSRs to the upscale sector - will continue facing challenges in both traffic and pricing.

As Black Box' Naroff concludes in an attempt to put a silver lining on the situation, "the summer season should be solid as people have money to spend. Unfortunately, until wage gains improve, which so far continue to be disappointing, no major acceleration in spending at restaurants should be expected.”

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ebear's picture

A common mistake I see all the time is to put a large bill directly into the till, then make change.  Bills should always be left on the edge of the till, and only placed in the tray AFTER the change is made.  This is so fucking basic, and yet no one seems to understand this.  I pointed this out to a cashier once when she gave me the wrong change (in my favor) and she did get it, but the point is, no one ever explained it to her.  Her manager was right there with a sheepish look on her face.  I guess that was the first she'd heard of it as well.

I'd rip them for a mistake like that, just to make the point, but it's the cashier who has to balance and guess who gets dinged when she doesn't?

If you do happen to see this, kindly point it out, OK?  It's not their fault they weren't trained properly and it's a shit job anyway, so cut 'em some slack.

LeftandRightareWrong's picture

Which cash register or POS device doesn't calc the change for the cashier now days?

ebear's picture

Sure, but they still have to punch in the right amount.  Besides, not everywhere in the world is as "advanced" as we are.

I learned a curious thing while researching my upcoming trip to Russia, and since this thread lacks a Russian spin, I though I'd better mention it for consitency's sake.

When you pay someone in Russia, you don't directly hand them the money, you put it on the table or counter where they can pick it up.  Cool, eh?

I also learned that you never give an empty wallet as a gift!  If you do give a wallet, it should have a substantial amount of money in it, at least more than the cost of the wallet itself...LOL!

Other things to remember.: Guys shake hands, chicks don't, but if they do offer a paw, it's OK.  Never shake hands with gloves on.... even if it's 30 below outside.  Always shake hands with everyone you were introduced to when you leave a place.  It's considered ignorant not to.  Oh, and whatever you do, don't shake hands across a doorway.  Step inside, or wait for the other to step outside.

Also, don't whistle indoors, and never give anyone an even number of flowers - that's for funerals!  Let's see.... when (not if) you're drinking, empty bottles go on the floor, not the table, and oh yeah... never sit at the corner of a table or you'll never get married.  (not sure how that works for married people).

Damn, so much to remember!  I am not going to fuck this up though.  Russians are going to see a dude that understands their shit even if it kills me!  Respect, yo!

Almost forgot.  Always wear a clean undershirt!


scam_MERS's picture

Being married to a Ukrainian, I can vouch for all of what you said is absolutely true. One more thing (which may relate to not shaking hands across a doorway), never hand someone an item across a doorway either. If you have to, place your foot into the doorway onto the threshold and then hand it to them. Strange superstitions, but they're very adamant about it. Bring your own bag to the grocery store, or you will have to buy one from the cashier. You will have to bag your own groceries, too. No boxboys/girls there.

The only one you mentioned that I haven't heard about was not sitting at the corner of a table if you want to get married. How does that work if the table is square? LOL

If you get on a city bus or "marshrutka", you will be expected to give up your seat to any older person who boards, no matter how tired you are. If you don't, expect to get jostled by said pensioner until you do, along with some nasty comments you won't understand :)

ebear's picture

"The only one you mentioned that I haven't heard about was not sitting at the corner of a table if you want to get married. How does that work if the table is square? LOL"

It refers to a table that is full.  You squeeze together to make room along one or another side of the table.  Never pull a chair up to the corner, or edge.  One version has it that you won't find a partner for 7 years, another that you'll never find a partner.  Maybe it depends on whether the table is wood or metal?

"If you don't, expect to get jostled by said pensioner until you do, along with some nasty comments you won't understand :)"

I've taken a few elbow jabs from old ladies in China, so I know the routine.  Old people always get my respect - I'm not that far from there myself, truth be told.  Various places I've travelled where I had a car, I'd always stop and ask old people walking along the road if they wanted a lift.  I don't know how that works in Russia but in Latin America it's always appreciated and usually gets you some fruit, a chile pepper, an ear of corn - whatever the person is carrying.  I miss those days.  Met a lot of good people.  Hoping to recapture some that in Russia.

Learning some Russian songs too in case I run across some musicians.

Have to learn some dance moves too!


Shpedly's picture

Same thing in Germany. If the bus or train is full and some old person gets on, you give up your seat pronto. I would do so naturally but if you don't, you will be ivicted from that seat one way or another.

Peanut Butter Engineer's picture

"The only one you mentioned that I haven't heard about was not sitting at the corner of a table if you want to get married. How does that work if the table is square? LOL"

That's when you decide to heck with it and marry that table.

Peanut Butter Engineer's picture

"The only one you mentioned that I haven't heard about was not sitting at the corner of a table if you want to get married. How does that work if the table is square? LOL"

That's when you decide to heck with it and marry that table. Or learn not to be so superstitious.

Lucretius's picture

Here in my neck of the woods(SE AZ, USA, the obnoxious cretins do not even know how to count back change! Even when breaking a C-note!!! They just seem satisfied with themselves and jam a wad of bills, coins and a receipt (occasionally) at you. So I patiently (and slowly) count the bills and change on the counter to check their success/failure at basic math before neatly putting my money away in my wallet without ever leaving the counter. Oddly, I usually get moar then deserved. Apparently they are not even smart enough to steal.

historian40's picture

When I worked fast food, it was one of the first things they told us when we learned to work the register.  Never put the money into the slot in the drawer until change is made and the transaction is finished.  Another thing, always hand the loose change to the customer first, then the bills, or you're much more likely to have money dropped.(fun when dealing with an a--hole in drive thru though).

My Days Are Getting Fewer's picture

She would last 5 minutes at a NJ gas station, where it is illegal for the consumer to pump his own gas.

A minimum of 10 cents per gallon discount for cash here.  Most all of the gas station attendants are from India or Russia - they can do math in their heads.  Their bills are rolled up sequentially.  They never make a mistake.

Regular gas here is about $2.35.  And that is after NJ put a 23 cent gas tax hike into force.

thenameismendy's picture

Not only that but if her drawer is short at the end of the shift the difference likely comes out of per pay, which is a joke to begin with.

Sonny Brakes's picture

This is what happens when you take your customer for granted. Fuck em.

Eddielaidler's picture

Don't blame the franchisees. They are victims too.

scoutshonor's picture

I'm waiting for the counter sign that reads: "we no longer serve food but the tip jar is still open."

Fukem indeed.

TheBigCluB's picture

People living in tent cities don't eat out much?

Eddielaidler's picture

People are out of money...period. One big big bigly chain's solution is to for it's franchisees to spend bigly right now or get out. Sign the pledge they said. Divestiture and attrition is the plan. Force the smaller operators out and you know the rest. It also for the first time has taken on bigly debt to buy it's own stock back and you know the rest. The small businesman has been killed and is hanging from the Arches.

Son of Loki's picture

The MSM excuse is, "they're buying online" I bet.

The media refuses to say Obama broke the middle class down to nothing.


Allen_H's picture

Most businesses think that  the solution to a problem can be solved by throwing money at it, but in the restaurant trade they often think you can fire people to get out of a problem, and that will help, it comes to the same result. After all, they draw money from the same community they abuse.

Tortuga's picture

Yes. I've noticed a rise in prices. I watch eggs, biscuits, and bacon, and milk;  because that's what I fix for breakfast. What I call 10 cent biscuits because they were a dime a can in my deplorable yooth, are now in packs of 4 for over 2 bucks and the size of a 50 cent piece. Eggs up over 200%, bacon up over 200%, milk up over 200%. Which is all relative to economics 101; sell more, make more, sell for less because of economy of scale. Course it was widgets back in the day but I don't know how to cook a widget.

Sonny Brakes's picture

In 1992 a box of Kraft dinner was 25 cents. I haven't bought Kraft products since Warren Buffett started putting his greasy fingers on the scale.

robertocarlos's picture

In the mid 70s it was 10 cents at most, so was a regular hamburger from McD's. Today KD is anywhere from 90 cents to 1.79 CDN, depending on the store and number bought, more or less.


The Real Tony's picture

In Canada it was 15 cents apiece for a hamburger, fries and a drink.

Mr Hankey's picture

That's crazy.Value Time mac& ch 2 4a $ at FoodCity & i use half& half & real butter & it is still less than a box of Kraft. 

Shpedly's picture

In 1980 Kraft boxed Mac and cheese was 15 cents. As a military brat going to the university of Maryland in Munich Germany I knew 2 twin brothers. They lived on Kraft Mac and cheese. They used their allowance and ration cards to buy cartons of cigarettes from the class 6 store, stereo equipment at the PX and sell it all to the Germans. A carton of Marlboros was 2.10 back then. They sold them for 3 dollars a pack which was cheaper than what the Germans were paying for counterfeit Marlboros. I'm sure the 2 of them made a fortune and continue to do so. The MP's caught wind of the shit during second semester finals week. Bunch of us got yanked out of class to answer questions. The twins? They were long gone. Packed up and back to Italy before anybody knew.

Shpedly's picture

As an overseas military dependent we got one when we turned 18. It allowed you to purchase a limited amount of booze and cartons of cigarettes per month. All were devoid of any taxes so it was dirt cheap. I think the limit was 10 cartons a month. Every time you bought 1 they would punch your card. This was back in 79 and 1980. When we got back to the states, US laws applied so no more ration card. The reason a bunch of us got hauled in was the twins were having other students buy cigarettes for them. I remember the little bastards would go to the Munich train station with 4 suitcases full of cartons of cigarettes.

XBroker1's picture

I paid 88 cents for 18 eggs yesterday. Why not free?

Mr Hankey's picture

That's the get-you-in-the-door hook at Fry's too.

Allen_H's picture

We here in the EU see prices also constantly going up Tortuga. Not fucking good man!

Ghostmaker's picture

This is what happens when wages remain stagnet yet real life cost increase. Eating out is money poorly spent.

BSHJ's picture

Even more poorly spent......when on a credit card at 19% interest and only minimum paid each month.

Catullus's picture

Economic conditions... improving employment... None of it explains lower Texas sales. That's been the case for 8 years. This is a secular decline in consumer spending.

Sonny Brakes's picture

What are you putting in your Kool-aid?

Catullus's picture

Your broken metaphors... and gin

silverer's picture

Don't make any fun of gin. It's health food.

Shpedly's picture

Yup made from juniper berries.

Ban KKiller's picture

Fight Club prepares the food when you dine out.

robertocarlos's picture

The lobster bisque is outstanding.

Stan Smith's picture

We rarely eat out anymore,  but am stunned in our area that we've actually been ADDING restaurants.  Chain, local, sit down, fast food,  fast casual, you name it.    I've hit a few of the places,  but wonder with them showing up,  it's rare when any of these places are packed.   That just seems hard to envision how this keeps going like that.


Allen_H's picture

In our city it is much the same, moved out but was in last week. Most restaurants still manage to hold on, I seen perhaps 4-5 that had closed, and about 4-5 that was replaced with cheaper alternatives. I noticed that it is the middle to upper class restaurants that are closing.

gunzeon's picture

"Mucker's" is now a restaurant ? Heaven help us all !

robertocarlos's picture

And yet Canadian health care workers are fatter than ever. They are striking for more money so they can continue eating out at McD's. Way to lead by example.

pitz's picture

The only people I know who still smoke, in Canada, are actually health care workers.  They are the only ones who can afford the $12/pack fags. 

Batman11's picture

The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living.

Purchasing power = wages – (taxes + the cost of living)

The US screws its population with taxes, housing costs, healthcare costs and student loan costs.

Purchasing power = 0

Actually it's negative and this is why they need Payday loan companies.

The US consumer maxed. out on Payday loans.

ElTerco's picture

As much as everyone says they love Trump (cf consumer confidence index), their lack of spending indicates they are uncertain and scared shitless. Actions speak louder than words.

Inthemix96's picture

Let me help you owt here Tyler.

Every fucker is skint for a start.  And the shite you put down as food is full of shit humans should not consume.

I do believe, us lot in the western style of things, are part of a greater scheme of things we cannot imagine, nor comprehend, our concienciousness cannot take it in, well fucking mine cant, but I know when me arse is twitching.

This could be the most important time in human history as has ever been written.  Just this once, we know just why we are under the cosh like at no other time that has ever passed us by.

And these cunts that were born to rule, know just why you cannot afford the shit their owtlets provide, they know, you know.

Oh fucking dear.


Spike the Railroader's picture

For me it is hard to justify spending $5 at breakfast time and $5 at lunch by eating at a food chain. Peanut butter or tuna salad brought from home for me adds up to about 3 bucks a day for meals at my job. That is far more affordable while just getting by after mortgage, utilities and gasoline. My wife and I make it a point to vary our meals that we prepare, but I couldn't even imagine how some people can pay $12 - $15 a day for garbage. 

silverer's picture

And it sounds like you're eating healthier.

Refuse-Resist's picture

The people who eat out lunch everyday (about 95% of my colleagues at my last white collar job) are in general fat, unhealthy, and on lots of meds.

So frequently the boss would stick his head in my office and say "we're going to IHOP for lunch" or "hey we're all heading over to Denny's for lunch, care to join us"


I would say no thanks, I brought my lunch. Salads generally. People thought I was weird and anti-social because I didn't want to pay top $ for mediorce food that made me sick.

I thought they, despite their educations and salaries, were a bunch of fucking idiots and I still believe that to be true.

I don't work in tha field any more and although I am poorer, I'm much healthier and less stressed.

Paying $10-20 per day for mediocre food is a terrible decision and one needs only to breifly observe people who do that and note the conditions of their health and bodies to know it's bad.


Unless you're dumb as fuck, brainwashed, or lazy.