U.S. Restaurant Industry Stuck In Worst Collapse Since 2009

Tyler Durden's picture

Shortly 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 July both same-store sales and foot traffic declined once again, and this time the slide was more pronounced, tumbling by -2.8% and -4.7% compared to declines of "only" -1% and -3% in June, respectively, in the process extending the stretch of year-over-year declines for the US restaurant industry to 17 consecutive months - the longest stretch since the financial crisis.

Source: @GS_CapSF

Sales rose in only 12 markets while declining in 183 with the Midwest - the worst region in the US - suffering a 3.6% and 5.2% decline in sales and traffic respectively, while even the best region, California", posted a decline in both sales (-0.7%) and traffic (-3.6%).

Source: TDn2K

Unlike last month, not even Black Box Intelligence's TDn2K research tried to spin the data, noting that the "sales rebound optimism was short lived" as "July restaurant sales tumbled."

“July proved to be a tough month for chain restaurants,” said Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K.

“Based on recent trends, we were cautiously optimistic that the tide was turning a bit, especially since brands were comparing against weaker comps in 2016.” But not so much any more.

According to Black Box, calculated on a two-year basis, sales in July 2017 were down -4.2% compared with July of 2015, in other words there has been no growth in over two years. The data is even worse for same-store traffic, which was down -8.7% for that same period. These are the weakest two-year growth rates in over three years, additional evidence that the industry has not reversed the downward trend that began in early 2015.

In light of the surprisingly poor monthly results, the consultant appear to have not only given up on any recovery in the restaurant sector, but are now extrapolating the weakness to the broader economy.

"While the economy keeps growing at a moderate pace and job gains remain strong, the consumer seems to be on vacation – literally and figuratively,” said Joel Naroff, President of Naroff Economic Advisors and TDn2K economist whose Industry Snapshot tracks sales at 27,000 restaurant units from 155 brands, generating $67 billion in annual revenue. That’s about 10% of total “eating and drinking places” revenues as tracked by the Commerce Department

One of the clearest indicators that households are spending cautiously is the softening of big-ticket purchases. In July, for the eleventh month out of the last twelve, vehicle sales were below the rate posted the year before. Home sales, while still trending up, are now expanding at a decelerating pace.”

While food and alcohol sales were down, prices once again rose, with the the average amount per check rising 1.8% in July, which once again was not enough to make up for the decline in customer count, confirming that restaurants have little to no pricing power to even stay up with inflation. Black Box adds that the growth in check averages has slowed in recent months "as brands fight the tide of continuing traffic declines."

Check increases in 2015 and 2016 were largely an effort to maintain margins in the face of higher labor costs. The slowdown in check growth may be a combination of value platforms and increased deal activity aimed at increasing visitation frequency. It may also be recognition that top-line increases are under more scrutiny despite the potential impact to operating margins. Given that grocery prices have been dropping year over year, it is no surprise that restaurants have been compelled to review their value proposition

More troubling, Naroff pointed out something we first observed two weeks ago: the dramatic revision lower in the US personal savings rate, which wiped out $250 billion from what the Department of Commerce had previously calculated was a healthy personal savings backdrop:

Households are currently maintaining their lifestyles by reducing their savings rate and that is likely restraining spending on discretionary goods. We may have to wait until the fall or early winter, assuming wage gains accelerate by then, to see any pick up in restaurant sales.”

Here, as Wolf Richter laconically adds, "everyone is waiting for wage increases for the lower 80% of the wage earners that will finally outgrow inflation. That’s all it would take to crank up the economy, and even the restaurant business. People have been waiting for years for these real wage increases. But it’s just not happening."

Furthermore, it goes without saying that the above assumption is a substantial problem for the roughly half of American households who have no savings in which to "dip" and fund discretionary purchases.

Meanwhile, as the vast majority of the US population struggles to make ends meet and digs into their meager savings, the far smaller group of high wage earners continue to spend generously at fine dininf establishments. Indeed, fine dining was the only segment up in July (0.4 percent) even as upscale casual was down fractionally. Still, the slowdown in fast casual sales noted in the past continued in July, as did softness for quick service. While much of fast casual’s headwinds are a result of rapid segment growth, the steady performance decline in lower PPA segments will be important to follow. Both segments outperformed the industry in 2015 and 2016, but trail through July of this year.

As reported last month, the pain among chain restaurants is due to a combination of factors, including:

  • The surge of independent restaurants, from high-end to delis.
  • “Grab-and-go” prepared foods available at every grocery store.
  • VC-funded meal replacement kits, such as Blue Apron, one of the most anticipated IPOs this year that has now totally crashed.
  • Convenience stores and food trucks

Meanwhile, as the government reported recently, June sales for "food service and drinking places" held at $56.0 billion, were flat with November 2016, a period of 8 months without growth. They were down 0.6% from January but still up 1.7% year-over-year. This weakness in nominal sales 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

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. Needless to say, these jobs fall within leisure and hospitality, that sector pays the worst wages, an average of $13.35 an hour, and $331.08 a week

And yet, according to BlackBox, restaurant operators are pessimistic regarding the difficulty of recruiting in the upcoming quarters. According to TDn2K’s People Report, 63 percent of companies reported an increase in difficulty recruiting qualified employees to staff their restaurants during the second quarter of 2016. Additionally, the expectations component of the index predicts continued job growth for the industry, with 47 percent of restaurant companies anticipating an increase in their number of hourly jobs. 42 percent reported an expected increase in their net number of restaurant management jobs.

As a result, retention continues to be a major challenge for the industry. Both restaurant management and hourly employee turnover increased again during June. However, the latest indicators may be hinting that increasing turnover rates are beginning to taper off. Still, even if turnover rates reach a plateau at their current levels, which is likely to be the best case scenario, they will remain at record high levels and continue to be a source of headaches for restaurant operators forced to keep raising wages to retain waiters and bartenders.

Putting it all together, we give the last word to Wolf Richter who summarizes the unsustainable situation as follows: "so credit card debt, at $1.02 trillion, has hit an all-time high. Auto loan balances, at $1.13 trillion, have far surpassed any prior all-time high. Housing costs are eating up an ever larger share of incomes. Healthcare costs are soaring. Households with kids in college are paying a big price. Many millennials, even those with good jobs, are buckling under their student loans, which have skyrocketed 164% over the past ten years to $1.45 trillion. And inflation-adjusted discretionary spending such as for restaurants by people at the lower 80% of the income scale is taking a hit. Something has to give. It’s the description of a messed-up economy."

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youarelost's picture

I gotta get my $ fiteen

Manthong's picture

 

WTF, over… I just had dinner at Taco Bell with my best illegal friends a couple of days ago

We stopped going to McD’s when the # 1 went up to almost  8 bucks.

tmosley's picture

Peanutz don't have enough money for McDonald's any more.

Peacefulwarrior's picture

This is a focus the legislation moment for the EBT card... No longer valid for grocery purchases but good at fast food chains with additional bonus rewards program included.. Fixed

Manthong's picture

 

with several large pops of

tequila.

 

that sweet concotion that helps you hang on......

Manthong's picture

 

I seldom go there, but

In defense of mickie D……

It is likely  the new Crook County Prickfuckel insane soda tax that is going to cost the county a whole bunch of revenue and ruin businesses.

CheapBastard's picture

8 years of "Hope & Change" has consequences.

philipat's picture

So can someone ask .Gov where all those "Waiters and Bartenders" "jobs" are coming from?

Manthong's picture

 

It would be cool if a Prickfuckel staffer read this and just maybe let in land on the socialist very very expensive  polished mahogany  desk…..…

..if I have a little restaurant and the real leader of a Hot Dog, meal or whatever.was a beverage…. and now you double the cost with a maniacal, tyrannical penny an ounce tax……

Hey genius…. You just whacked the business model……

Congratulations……………………………………………………..  

 

Chuck Walla's picture

Corruption is expensive.

And what with Sheriff Dart letting every gangbanger go no bail, why be the turkey in the Great Chicago Turkey Shoot?

Pernicious Gold Phallusy's picture

But it's for the children. And our models show it won't hurt business owners at all.

JethroBodien's picture

Are you implying the numbers are doctored, fabricated, concocted, cooked, contrived, invented, made up, hatched, thrown together, pieced together or just plained dreamed up?

HardAssets's picture

Thin air ?

It and hot air are .gov 's biggest products

Abbie Normal's picture

Where I work, we're always short on waiters and bartenders so I wonder who they're working for?  More likely, self-declaring as a waiter or bartender is the safest way to not report their true cash earnings.

peippe's picture

i dropped the beverage twenty+ years ago....

nowadays in the drive thru, 1/2 the people are doing it with me!

just the burger, maybe even screw the fries you D bags. 

Never One Roach's picture

The food industry, like the drug industry, must try to addict people to their food so they keep coming back no matter how unhealthy the food or drug is for them.

Manthong's picture

 

Tom Dart...

 

gee.... don't get me started

if I only had a high pressure hose wiith a nozzle large enough for a certain rear end.........

Abbie Normal's picture

Buy the cheapest menu item.  When you get the receipt, complete the online survey and get 2for1 burgers or free burger with fries & a drink.  Repeat with that receipt and never pay full price again for a burger; or as long as your arteries can hold out.

HardAssets's picture

It took a long time to get there as a 'live & let live' type who has sown a few wild oats, - but I have to agree. Western women were sold a lie starting in the 1960s. They are victims of a psy-op that has ruined millions of lives & targets the whole society. Totalitarians seek to turn society on its head so they can destroy it and then remake it as they wish. Feminism is a dagger pointed to the ultimate foundation of societies - the family.

When mothers look approvingly at their 20-something daughters' street walker look wardrobe & think it 'stylish', something is very wrong. When same mothers & daughters go out and get biker slut tats, you know mass brainwashing has been extremely effective.

cbxer55's picture

Got to get me one of them pencil thin moustaches. Then I might get more fur burger in paradise. ;-)

spastic_colon's picture

double hamburger and a water at BK $1.50 310 calories 16% RDI

Kprime's picture

that's a plastic and sawdust burger

daveO's picture

You're not kidding. I was near a BK and thought I smelled plastic burning. Then, I saw the the plume of smoke from their vent. It ain't what it used to be.

PT's picture

Whoever wrote this article is not doing the industry any favours by posting a photo of Mickey Ds.  McDs?  Restaurant???  How do those two words even end up together in the same sentence?  Sure, McDs are big but there's a whole world full of restaurants out there that are NOT McDs.  And, more importantly, THEY are the ones that matter.

mkkby's picture

They've been marketing to dindus for a long time now.  High prices, surly employees.  And let's not forget the occasional fights you get in groups of porch apes.

It's a wonder they have any sales at all.

Chuck Walla's picture

You know BK is/was the leader in "cellulose" additives to their meat?

Never One Roach's picture

At least I get to keep my doctor....

 

...oh, wait a second!

Shpedly's picture

Taco Bell? Seriously? Taco Bell is a frigging abomination and more expensive than just the shit standard garbage McDonald's.

Haitian Snackout's picture

Well TB was halfway decent when it was private. Never authentic or top quality, but decent for a pit stop. But you're right about it now. Not even food IMHO. But that's corporations for ya, everything they touch turns to s#%T. 

Pernicious Gold Phallusy's picture

I ate my first taco ever in the early 1960s at a little stand called Taco Tio, just off Harbor Boulevard in Costa Mesa. That grew to become Taco Bell. Their headquarters is not far off, at the Y in southern OC. (That's where the 5 and 405 meet, for those who haven't been there.) The tacos weren't the same 30 years ago and I haven't been back. 

Grandpa used to take us to McDs occasionally. I liked the Quarter Pounders and Filet of Fish. 40 years ago I got sick quick after a FoF and haven't been back.

Some male friends worked at a 24 hour Jack in high school. When it was slow at night they added something white and slimy to the Secret Sauce. I haven't eaten there since HS sophomore year. About 25 years ago some cops got some burgers at a new Jack in Phoenix, across the street from the county hospital. After a few bites one realized there was a huge slimy green loogie inside. It made nationwide TV and I've never been able to get it out of my head. Sorry, Jack, me off.

My cousin managed a Colonel's. Did spectacularly and got to meet the foul-mouthed old lecher as a prize. When they caught a rat or mouse, the breaded it and dropped it into the fryer. Nobody ever noticed/complained.

Go into a Carl's. A regular burger is what, $2? They also sell something called a 100% Real Beef Burger! for about $8. I wonder what the difference is.

IntTheLight's picture

Speaking of TB, Starbucks interviewing 10,000 Somali refugees.

I have one rule. I will not eat in any restaurant where workers all minority. It's a hygiene thing.

So that eliminates all fast food. I don't want Hep C or TB or fecal matter in my food.

fattail's picture

I like all the signs in the bathrooms.   "Employees must wash their hands after using the facilities."  Who doesn't wash their hands after using the facilities?  Apparently the employees.

Part of the decline is people are eating healthier, judging by the expanding meat and vegetable section in the grocery store, and the doubling of the price of avocadoes in the last year.  It keeps getting more expensive to eat like me, but still way cheaper than obamacare.

Keystone's picture

I used the men's room in a Chinese restaurant and someone crossed off the r in work, so the sign said "All employees must wash their hands before returning to wok".

swmnguy's picture

The signs in the bathroom are a health code thing.  They've been around forever.  I've always chuckled about them too.  But then, every so often there's an E. Coli outbreak that was caused by employees rather than food product contaminated before it got to the restaurant, so I guess the employees do need the signs.

Abbie Normal's picture

"I will not eat in any restaurant where workers all minority."

So you're pretty much limiting yourself to Cracker Barrel.

DownWithYogaPants's picture

"WTF, over… I just had dinner at Taco Bell with my best illegal friends a couple of days ago

We stopped going to McD’s when the # 1 went up to almost  8 bucks."

How much was the number 2?

HardAssets's picture

Yep, when prices rise too much people figure out they can buy much better food for the same or less money. Lots of places around that serve authentic Mexican food in my area. Puts McDs to shame (which is easy to do).

Joe Mama 3's picture

made by authentic real illegal messicans !!!!!!!!!!!!! next time you're in that place check out big mama with an ass so big she can't wipe herself !!!!!!!!!!   Mmmmmmm....................   I'm gettin hongary !!!!!!!!!!!!!!!!

Jeremy Roenick's picture

Confucius say....  "Ramen is cheaper than the Big Mac"

 

Joe Mama 3's picture

the workers ?????   Sounds like the Bell @ six pines and lake woodlands !!!!!!!  ( the woodlands, tx )

kgw's picture

Hmmm, wonder why the massive rent/lease prices aren't mentioned...Restaurants have to make the rent/lease payment in one night's business, plus the equipment and staff costs. They can't charge enough to do so because no one could afford the meal...Bankers!

Give Me Some Truth's picture

Restaurants are:

1) Raising prices

2) Decreasing portion sizes

3) Substituting cheaper ingredients for more expensive ingredients

... And we're still told inflation does not exist.

Joe Mama 3's picture

The Jesus Chicken seems to be doing great !!!!!!!!!!!!   God smiles on those who buy and sell chicken blood in His name !!!!!!!!!

hopefulbutwary's picture

Who can live on $15 an hour? Let's make it $30.
/sarc