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Black Box: Restaurants lost momentum in May

Same-store sales were flat for the month, and traffic continued to decline.
Pixabay neshom

Restaurant chain same-store sales were flat in May, according to the latest index from Black Box Intelligence, as the industry lost some of its early-year momentum and consumers found other sources for their dining.

Same-store traffic declined by 2.9% during the month, a 150-basis-point decrease from April’s 1.4% decline.

The results demonstrate the challenges restaurants continue to have despite a booming economy, with low unemployment and recent tax cuts.

“It was a reality check kind of month for the industry,” says Victor Fernandez, vice president of insights and knowledge for Black Box parent company TDn2K. “We’ve been saying this for quite some time, but the fact is that one challenge chain restaurants have is traffic and guest counts. We haven’t been able to resolve that.”

For the year, same-store sales are still up 0.3%. That’s an improvement from the 1% same-store sales decline last year.

“That’s a big change,” Fernandez says. “It’s a much better situation, a much stronger industry.”

But, he says, “We are still fragile when it comes to traffic and overall consumer spending.”

Restaurants have seen same-store sales and traffic challenges for nearly three years despite an improving economy.

The results suggest that the industry has some fundamental challenges. Perhaps alternative sources, such as prepared food at grocers and c-stores, are taking some share. Or maybe independents, especially in urban areas, have been more competitive.

“Independents, food trucks and convenience stores are stepping up their game,” Fernandez says. “There’s a change in behavior in a sense that a lot of consumers want to discover something new. The familiar chain is just not what you’re looking for.”

Another potential problem: Restaurants have overbuilt.

The industry has aggressively added units over the past decade, and that includes casual-dining restaurants. In 2016, according to Black Box, chain restaurant unit count grew by 2.2%. That growth slowed to 1.4% last year, and casual-dining unit count declined, suggesting that sales challenges are getting to the supply of locations.

Fernandez says that the industry appears to be removing at least some underperforming locations, and over time, that could help improve industry same-store sales as existing traffic shifts from closed locations to open units.

That could explain improved same-store sales in casual dining so far this year. “The reality is we’re seeing a declining number of restaurant units in casual dining,” Fernandez says. “That is definitely helping in improving sales.”

But, he says, on a two-year basis, same-store sales deteriorated in May, and the industry is losing traffic.

So while Fernandez remains “cautiously optimistic” that same-store sales and traffic are starting to normalize, the month’s performance still highlights the challenges the industry still faces.

“The reality is we’re far from resolving those issues so we can compete in a way we’d like against other competitors coming in,” Fernandez says.

He says the biggest issue is supply. “We may have needed more restaurants 10 years ago, but that number is probably reduced today,” he says. “We have to realize that.”

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