Restaurant chains’ struggles to lure customers returned in February amid bad weather in many parts of the country and a continued weak industry environment.
Total sales rose 3.7%, according to the latest Technomic Chain Restaurant Index, a significant slowdown from the surprisingly strong 6.3% growth in January. That was due to slowing traffic, which grew 2.2% in the month.
While traffic increased on an annual basis, it has been slowing since October. According to Technomic, traffic has slowed an average of 0.6% since October.
“Some correction seems to be happening,” says Sara Monnette, vice president, innovation for Technomic, a sister company of Restaurant Business.
February Sales Year Over YearSource: Technomic Chain Restaurant Index
February Traffic Year Over YearSource: Technomic Chain Restaurant Index
The Technomic Chain Restaurant Index measures total sales, rather than same-store sales, so it factors in changes in unit count.
The index measures sales from the 200 largest restaurant chains based on Technomic's Top 500 Chain Restaurant Report, and is based on data from Technomic Transaction Insights, which collects information from 3 million customers and nearly 20 million restaurant visits.
The biggest problem came with casual- and fine-dining restaurants, where sales declined 1.2% year over year, while traffic fell 4%.
While that sector improved at the end of 2017, it has lost momentum since. Consumers have shifted much of their spending toward more convenient options and to independents, which has hurt those chains’ overall sales and market share.
“In casual dining, nearly all the big players are losing traffic,” Monnette says.
On the other end, fast-casual chains continued to flourish, with 6.8% sales growth and 2.1% traffic growth.
But even that represents a slowdown. “Fast casual is still positive, but it’s slowing down,” Monnette says.
The problem for that sector might be math. “As those brands get bigger, it gets harder to grow,” she says. “And smaller, emerging players take traffic.”
From a traffic standpoint, however, the best-performing sector was midscale restaurants, typically known as family dining. Traffic in that sector rose 3.3%, while sales increased just 1.6%. That suggests that chains such as Denny’s and IHOP are bringing in consumers with lower prices.
That dynamic isn’t quite as pronounced at quick-service restaurants, where traffic rose 2.8% and sales increased 4.7% during the month. But the higher traffic relative to fast casual demonstrates the price competition among fast-food restaurants.
Still, the overall slowdown in sales could be a reflection of challenging weather in many markets. Snowstorms will frequently keep customers home, so they don’t spend their money at restaurants.
But there are other concerns, too. The industry’s same-store sales have been weak for more than two years now. Consumers are clearly diversifying their spending and shifting money away from chain restaurants.
“They have a lot more options,” Monnette says. “Consumers are switching where they’re getting their food from, and it’s not necessarily restaurants. That’s starting to come through in the data.
“Consumers are not necessarily cutting out prepared meals, but traffic at restaurants is going down.”