A few brands last quarter reported some remarkable same-store sales. Wingstop, for instance, generated 16.8% same-store sales growth in the second quarter, the best among the 39 chains that have reported their earnings thus far. McDonald’s, meanwhile, found a way to report another double-digit increase.
A few others, such as Dutch Bros, accelerated sales off disappointments. Or they bucked overall trends in their sector, as Texas Roadhouse continued to do with its 9.1% same-store sales.
But for the most part, industry same-store sales slowed down last quarter, and not by an insubstantial amount.
Average same-store sales slowed to 3.4% in the second calendar quarter from 7.3% in the first quarter, a nearly 400-basis-point slowdown. The numbers do not include operators like Brinker International and Darden Restaurants, which have yet to report their most recent earnings.
The slowdown is evident in each industry sector but appears most pronounced on average in fast-casual restaurants, where the average performance in the first quarter was particularly strong. The second quarter less so.
That data, by the way, likely does away with the idea of a broad tradedown from casual dining into quick-service restaurants. While the full-service chains did show a larger slowdown than did quick-service restaurants, it’s certainly not enough to move the needle much at fast-food chains, which still lost sales last quarter.
But Jonathan, these are one-year numbers. You have to show same-store sales on a two-year basis to get a better sense of industry performance.
Those numbers are no better. Check out the two-year same-store sales trends for each of the past three quarters among this cohort of 39 chains:
Do the math, and that is a 20 percentage point slowdown from the last three months of 2022 to the spring of 2023. It’s enough of a slowdown to suggest a consumer shift away from chain restaurants.
There are a few explanations for this:
The consumer is normalizing. The consumer is now fully into full-service restaurants. They’re not loading up on meals for large groups in the drive-thru quite as much. That has influenced some of the high check averages that we saw during the past few years, and it may be particularly pronounced now. Indeed, the second quarter at least theoretically was the first “normal” quarter since the fourth quarter of 2019.
Independents are coming back. I think this is a bigger explanation for this than many think. People like independent restaurants. There’s evidence that indies are opening more locations again. And consumers may be shifting some of their spending there. While consumer “pent-up demand” for restaurants is likely spent, that may not be the case for independents.
Prices are having a bigger impact than we think. Eventually, consumers notice high prices and react accordingly. It would not be remotely surprising if what we saw last quarter was the result of a legitimate consumer pushback on prices. Traffic broadly was down throughout the industry. Companies like Noodles and Papa Johns made specific references to a consumer reaction on prices. And that may be what we’re seeing here.