The restaurant industry had its best performance in nearly three years in April, as consumers spent more at chains following their winter hiatus, according to the latest data from Black Box Intelligence.
Same-store sales rose 1.5% in the month, according to the monthly index. It was the strongest growth in 31 months.
“We’ve been saying we’re cautiously optimistic about 2018, and April kind of proves that,” says Victor Fernandez, vice president of insights and knowledge for Black Box parent company TDn2K. “It’s all relative. We’re not lapping over the best of years last year. But we’re getting results moving in the right direction.”
The industry is still losing customers on a same-store basis, as an increasing number of locations and other options for prepared meals pull consumers in different directions.
But traffic is improving, albeit on a relative basis. Traffic declined 1.4% during the month. But that was the best traffic performance in two years, Black Box said.
That continues a three-year slide in the number of customers at existing restaurants. “We’re still climbing out of the hole we’ve been digging the last two years,” Fernandez says. “Even in the best months of the last 30 months, we are not getting even close to positive traffic growth.”
Same-store sales had been improving late in 2017, but they declined again in January and February as bad weather hit much of the country. They showed some improvement in March, and April was even better.
“Even in January and February, we really believed there was an underlying strength there that weather was obscuring,” Fernandez says. “March and April have kind of confirmed that.”
The industry has seen generally weak same-store sales for the past three years, likely due to a combination of factors: low retail grocery prices, competition from other industry sectors such as convenience stores and a broad consumer shift away from dine-in occasions.
But the weak same-store results demonstrate that the industry is probably oversupplied, as it has expanded at a rapid clip in the post-recession era.
“Even with chain restaurant sales slow, brands are coming along and expanding and growing,” Fernandez says.
The traffic challenges come despite an economy that is growing. Unemployment has fallen to 3.9%.
The economy “is growing solidly and should continue to do so,” Joel Naroff, president of Naroff Economic Advisors and the economist for TDn2K, said in a statement. He believes that, though wage increases are “not robust,” tax cuts that trickle into households this year should provide some benefit to restaurants.
The tax cuts might not be strong enough to generate big-ticket sales, but they could be enough to generate a night out or two.
Increases in average check, Fernandez says, could be a sign that consumers are feeling better about their finances and are willing to spend more, even if they don’t actually go out as often.
“A lot of brands are aggressive with promotions,” Fernandez says. “But there’s still an acceleration of guest check. Brands are more comfortable taking price. Those brands doing better tend to have a bigger increase in average check.”
But restaurants will have to contend with its traffic challenge if they are going to keep generating better sales.
“Until we figure out the traffic part, we’ll have trouble with relative sustained sales growth,” Fernandez says.
In fact, perhaps the industry needs to lower some expectations. “In the current environment, even flat traffic would be a goal to aspire to as an industry,” Fernandez says. “If we can figure out a way to keep guest counts, we’ll be in a much better position.”
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