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Black Box: Restaurants post best quarter in 2 years

Industry same-store sales grow slightly in December and discounts take hold and traffic improves.

Same-store sales in the last three months of 2017 increased 0.4% in the best quarter in two years, according to Black Box Intelligence.

Same-store sales increased 0.3% in December, according to the index, as discounts at limited-service chains took hold and traffic improved. That was the second-best month since March 2016.

The numbers suggest that restaurant chains have hit bottom after two years of weakness. Same-store sales declined 1.1% in both 2016 and 2017. Traffic fell 3.2% in 2017.

“Overall, it was a good month for the industry,” said Victor Fernandez, executive director of insights and knowledge at Black Box parent company TDn2K. “The upward momentum we’ve been seeing improved.”

But the results were somewhat disappointing, at least in December. The industry was comparing itself to a notably weak month a year ago, when same-store sales fell 4.3%. As such, many observers expected better than a 0.3% increase.

“Obviously it’s not as good as you’d want it to be given the horrible month we had in '16,” Fernandez said. “It wouldn’t have been hard to post 1% up.”

But he pointed out that the restaurant industry’s performance improved 260 basis points from its notably weak third quarter. “It’s somewhat encouraging,” he said. “Yes, last fourth quarter was bad. But at least we seemed to improve. The fourth quarter was much stronger.”

And he said traffic improved. Same-store traffic declined 1.9% in the fourth quarter, including a 1.8% decline in December.

But the traffic figure was 70 basis points higher than November’s number, suggesting that restaurants lost fewer customers in November.

Fernandez said that all segments in the industry saw improvement in the fourth quarter over where they were in the third quarter, including table-service concepts.

Upscale chains, including fine dining and upscale casual, reported “strong” same-store sales in the quarter. But he also said that same-store sales increased for casual dining and family dining.

And he said fast casual saw a same-store sales increase, too. “Fast casual and family dining had not been positive since the first quarter of 2016,” Fernandez said. And the last positive quarter for casual dining came in the fourth quarter of 2015.

Fernandez said that discounting “was a factor, especially in the bar and grill subset” of casual dining. But he said overall guest check increased in the fourth quarter.

Not so for quick-service restaurants and fast-casual chains, where guest check declined in December, suggesting that the discounting trend took hold in much of the restaurant industry.

“Fast casual and quick service keep relying on more of a value strategy,” Fernandez said.

Overall, the restaurant industry has steadily improved since July, when same-store sales declined 2.8% and traffic fell a whopping 4.7%.

That suggests the industry could keep improving, albeit slowly, in the coming months.

“The last five months, we’ve been seeing that slow and steady improvement that hopefully carries into 2018,” Fernandez said.

And the industry has some economic tailwinds. Low unemployment, 4.1%, appears to finally be generating some wage growth restaurants rely upon for their sales. Tax reform is expected to yield some fatter paychecks this spring. And, of course, things couldn’t get worse.

Joel Naroff, president of Naroff Economic Advisors and a TDn2K economist, said economic growth could approach 3% this year. “That creates expectations the recent rebound in restaurant spending will not only continue but possibly accelerate,” he said in a statement.

“I do believe we will see a better 2018,” Fernandez said. “The economic indicators are showing some strength there, and incentives are going to be high.”

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