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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I Write Code's picture

If you go to a place where you sit down and are served, a burger fries and iced tea will now run you over twenty bucks, unless they have a lunch special and even then, with tip, it's liable to be nineteen.  Friggin' (bottomless) glass of iced tea is now running $3.75 most places.

bytebank's picture

You see a lot of people paying with a CC for groceries, Fast Food etc. That is what keeps people going. When interest rates go up that will be game over for a lot of people.

Boca's picture

I pay for everything with a CC, 2-5% back on every dollar I spend, I do pay them off every month so no interest.  Used to be easy to make a few grand a month off CC companies by buying Visa GC and then using them to pay back the card  

Shpedly's picture

Don't kid yourself on that "cash back" shit. Virtually all of my sales are via credit card. All of those sales are marked up additional 6% to cover your "cash back". Every other credit card merchant does the same thing.

daveO's picture

In a restaurant, it's the same price, cash or credit. This means that the cash payers are suckers. They're carrying part of the CC's transaction fee. When restaurants offer me a cash discount as good or better than the CC rewards, I'll pay cash again.

LeftandRightareWrong's picture

Which cards charge less than 12-22% interest now?  Even though the banks can borrow near zero.

cbxer55's picture

Hell, vending machines where I work now accept cards. Credit or debit. And I see people sliding their card to buy a fucking can of high fructose soda water. YUCK! And sliding their card to buy junk food from machines! WTF??? Can't live without it?

Allen_H's picture

When I need the runs, I will eat out. I aint payin for that no other way.

Hahahahahaha

John Law Lives's picture

Taco Cabana is the only restaurant I frequent.  They have some surprisingly healthy (and inexpensive) items on the menu.  I can fill up my gut there for under $6... and bring home leftovers.

Librarian's picture

I was never really sure whether the Taco Cabana actually existed or not.

I've never seen one while sober.

Kprime's picture

You are obviously not married.  "honey, I'm home, I brought you taco cabana left overs". lmao

Publicus's picture

It's the deportations having an effect at last.

Vimes's picture

Hahaha... McDonald's a restaurant ....hahaha

 

Hahaha.... Americanos!!! Hahahha

Wahooo's picture

Don't tell my son that. He wastes every fucking dime he has eating out.

CRM114's picture

Tyler, it shouldn't be too difficult to replot all the graphs against real inflation and real wages.

http://www.shadowstats.com/alternate_data/inflation-charts

https://tradingeconomics.com/united-states/wages

Best I can figure it, real inflation has averaged 5% per year, real wages have risen by 2.1% per year (hourly wage up 2.1%, average hours static at 34.5), both since mid 2010. 

Thus the spending increase decline is obviously caused by people simply having less disposable income (adjusted for inflation). People are losing disposable income at 3% per year. We would therefore expect restaurant spending to increase by 2% per year, as it has, which is a real decline of 3% per year allowing for real inflation. Nobody has changed their eating preferences, but they simply have less to spend. The 3% foot traffic drop simply confirms the 3% less disposable income.

Furthermore, it should be obvious that there is nothing the restaurant industry can do to stop the decline until wages start to increase faster than inflation, of which there is basically f#ck all chance.

Incidentally, the hard stats of wages and restaurant sales and foot traffic do provide further evidence that the shadowstats figure of real inflation being 5% per year is correct.

gregga777's picture

Well, you just know that the American Business School graduates running American CONporations are not about to increase wages.  They'll just outsource even more work to the Peoples Republic of China, India, Vietnam, Bangladesh or some other up and coming slave labor mecca.  They'll all give themselves huge year end bonuses for having come up with such great solutions.  Then they'll sit around trying to figure out to word their next quarterly reports to take into account their falling revenues and profits due to more working age Americans being out of work.  

As it is now there are ~102 MILLION working age Americans who are unemployed.  That probably explains tepid gasoline demand.  No job?  Not much need for gasoline to fuel the commute to work.  Falling automobile and truck sales?  No job?  No money for monthly payments they couldn't even afford if they were working at some minimum wage restaurant job.  

The de-industrialization of the United States of America, the nation that produced more armaments during WW2 than any other, is rapidly and successfully proceeding under the guidance of our Intellectual Yet Idiot classes ruling MORONS.  

By the way, I have a question for our Intellectual Yet Idiot classes ruling MORONS: how do you intend to maintain the American Empire with no manufacturing base?  Maybe the plan to give it all away to the Russians and Chinese?

 

 

just the tip's picture

what makes you think they will send the MIC to those countries?  you remember when airbus opened their place in alabama a few years ago?  their plan was to get US military contracts.  they were in the US so they would be employing americans.  that was their pitch.  boeing was having none of it.  they went to congress and gragged them by the pussy.  no military contract for you!!!!!  they are kicking boeing's 737 series ass with orders on the 320 series.

Refuse-Resist's picture

The de-industrialization of the United States of America, the nation that produced more armaments during WW2 than any other"

 

No, the US produced more by 1944 than all other beligerents, combined!

 

COMBINED!  Look it up

Kprime's picture

Nobody has changed their eating preferences????  uuuhhh, what?  You could not be more wrong.  Are you from the government?

CRM114's picture

My apologies for the inelegant phrasing. What I meant was that I do not think there has been a fundamental shift in the preferences of those who routinely use chain restaurants, i.e. They would eat there often if they could afford it. 

The basic problem is that few people now know how to cook, or have the time to, or both.

If you have evidence, I'd be interested to hear it.

Megaton Jim's picture

You phrased that lousily!

CRM114's picture

My apologies again.

Language isn't my strong point.

I'd welcome a better way to say it, assuming you understand my meaning.

Sid Davis's picture

Eating out is more costly than eating in. When people on average are feeling less economic success they give up the extras and eating out is something that can be foregone.

There are a number of factors that are making the economy less successful; in addition, the distribution of income is changing, adversely affecting those not at the top of society.

The increasing debt burden has a dampening effect on spending as a larger portion of current income is going to repay debt. Government over the years has become more burdensome in regulating the economy causing it to be less efficient. And the elephant in the room is energy, where it is increasingly using up more and more energy to get new energy (declining EROEI) leaving less energy available to drive economic expansion.

There is little hope that any of these problems will be solved, so the expectation should be that fewer and fewer people who will choose to eat out. You are seeing the decline in the industrial age with restaurants being just one of the canaries in the coalmine.

LeftandRightareWrong's picture

Over supply, not weak demand. Restaurants on balance have been jammed since 2009, but a few too many now have opened.  Since the giant mortgage bond conspiracy and fraud, people go out to Dennys locally rather than fly to Hawaii just to go out to Dennys (or CostCo).

rejected's picture

They (restaurants) just keep getting worse. Chilis is so bad now with their microwaved Sam's Wholesale Mexican meals we won't go near it.  Used to eat their Fajitas all the time but again, they went to cheap pressed chicken with those cute black marks to pretend they're char-broiled. Red Lobster service is poor, food maybe warm, Have to carry in French Dressing as they always say they just ran out. Their salads with 2 cherry tomatoes, and a bunch of lettuce and no onions. They cut out the onions!  The hamburger joints are beyond help. There's so many Pizza joints they're selling them for $4.99 at some places,,,, $4.99! One can imagine the crap in those. Olive Garden...LOL....

Cleanliness is much to be desired as well,,, admittedly it seems more of the class of people. Tables look like they've had food fights are now commonplace and the low number of staff means the tables and surrounding booth stay dirty for awhile. In sports bars the yelling of men and screeching of women over some game makes it impossible to enjoy a peaceful meal. Absolutely people of no class and little courtesy frequent these..... restaurants.

Then the digital crap... They roll their eyes if you don't use that digital piece of junk taking up space on the tables and use cash. I suppose they'll soon have some digital cart (called robots today) bring you the food. It'll be like eating on an assembly line.

Then after the poor food, service and hassle they want a tip!  Not happening! Although we can afford eating out, we have stopped. Like everything else they've screwed up,,, it's no longer fun.

mkkby's picture

You are doing it wrong if you go near those corporate shit hole chains.  Some MBA sits around figuring out how to skim a few nickels out of your pocket.  So you get pre frozen microwave meals, served by one minimum wage she boon who has 40 tables.

Lots of lettuce and bread but no healthy food.  Tons of salt for *taste*.  Free refills on high fructose soda water.

Find the last remaining independents and enjoy freshly cooked food again.

Kprime's picture

excellent post.

20-30 years ago my restaurant budget was over a thousand dollars a month.  I ate all kinds of delicious fresh made meals.  I bought hundreds of meals for friends and family.  Today my restaurant budget is about 200 a year.  Emergency purchases only.  We don't purposely eat out anywhere.

Shpedly's picture

Yup. Chili's used to be decent. Now it's a filthy bar with shit food.

daveO's picture

"It'll be like eating on an assembly line."
Right, it won't fly. MCD's is kidding themselves. While an electronic screen would be superior to Shanquita and her nose ring, it's not enough to replace the quality food that they used to sell, 30 years ago. Automats(fancy vending machines) have been tried before.

Nesbiteme's picture

USA Americans love to eat out. Who has the time to cook food at home? Even if you did have the time to cook food at home how do you find food and then who remembers how to cook? Not many USA Americans. Packaged food, except for Doritos, tastes terrible. But when USA Americans eat out often the people who serve them are mean, or rushed and don't have the time to tell the USA American customers respectfully and patiently about all the craft beers on tap, or the different gluten free vegan options on the menu or all the fat free ways the veggies can possibly be prepared. Of course these same USA Americans also want all this great service and choice and veggies and all the craft beers they expect and parking and on top of all this they want all you can shovel into your mouth buffets, all you can eat chicken wings...chickens...... 00.99 cent egg waffle pizza deals on and on and on it goes. So the industry has to cut corners to meet these expectations and corners are cut let me tell you they are cut. And the corners are cut so much and so deep that even, and this is the key, even the dim bulb USA American blimps in sun dresses and ill fitting shorts and dirty tshirts even these fucktards notice something isn't worth it. That is when you know your industry is in trouble.

Mr Hankey's picture

Hey!Better quit hatin' on'murica! We gots the greatest & 'n bestest...     .. . ...  military in da world!!!   'Murica!!!FUCK YEAH!!!

Shpedly's picture

What the fuck is a USA American? Is there some other American I don't know about?

Mr Hankey's picture

One who isn't  a South American , or a central American. 

Shay216420's picture

They lie too. I can't believe how they lie, it's despicable...

tlnzz's picture

Most people spend "disposal income" going to restaurants. As the cost of everything increases faster than income rises, people have less and less disposal income. Eating out is the first place for many to eliminate some spending.

Refuse-Resist's picture

I've never had a job in over 30 years where even half the people working there bring their lunch. From minimum wage construction labor to white collar management.

Most people with jobs eat out every day and their bodies show it bigly.

buzzsaw99's picture

i eat out sometimes but most of it shouldn't be considered food.  filthy restaurants, bad service, disgustingly cheap booze, awful food.  The cost has nothing to do with it for me, the experience sucks most of the time.

Allen_H's picture

Then why do it? Dont waste your mony on trash.

just the tip's picture

most people see "restaurant" meals in the freezer section of their grocery stores.  the rub is, those freezer meals really are the same thing, with all chemicals included as well.  not a damn bit of difference.

OT

when younger, i would drink a balvenie doublewood scotch  while eating out.  one day, which came much too late i compared the price i was paying at the liquor store to the cumlative price i had paid at the restaurant.  $36 vs $420.  i'll have a lemon in my water please.

thenameismendy's picture

NEVER buy alcohol of any type at a restaurant. Dont even buy soft drink. Margins on drink way higher than for food.

G-R-U-N-T's picture

Does this mean my 'Monster Tacos' at Jack-in-the-Crap may be in jepordy?

az_patriot's picture

Part of the reason for this is that most chain restaurants suck and many people are starting to avoid them.  Thanks to Yelp, Trip Advisor, and social media in general, people now have the ability to pull off the road into an unknown city, fire up an app on their phone, and see where the good places to eat are.  I've never seen ANY of the major chain restaurants pop up to the top of the list -- anywhere.  Prior to this, people would go to the chain restaurants because they had no idea where the good local restaurants were.

Refuse-Resist's picture

I like TripAdvisor and that is exactly what we do when we're on the road.. find the better independents. And it works everywhere I've been in the USA. And you're right about the chains.

 

If a chain outlet is in the top 10 for a place, you're better served moving on to another place.   The local pizzeria (in the NE) or taqueria (in the S and SW) bill be far better tasting and higher quality than any chain.

wholy1's picture

AND . . . it's just getting started.  Rather ironic that fewer consumers have less "discretionary income" to buy chemically adulterated GM/GE crap on which to "dine".

ThanksIwillHaveAnother's picture

Eat out , get a GI full of Glyphosate!   See https://youtu.be/kVolljHmqEs

DeaconPews's picture

Fast "Food"

It's only considered food in the sense that your body will try to defecate it.

European American's picture

Aside from the economical constraints hampering the vast majority of Americans, I think that many Americans are catching on to the numerous facts associated with "eating out" in most of the "'eateries" across the nation.

Maybe Americans are realizing that most of the food "prepared" in restaurants lacks nutrition, vitality, wholesomeness, and is prepared and served by many people who are just going through the motions.

 

Frankly, I don't want to sit in a highly toxic environment, from the chairs, tables and flatware to the dishes, drinking water and breathing air, and I don't want someone who picks their nose, touches their privates, sneezes in the kitchen, lounges with viruses, cooking GMO food that's most likely contaminated with micro-organisms from the darkside.

Restaurants are ripe cesspool laboratories encouraging the spreading of disease.