We analyze same-store sales from publicly traded chains once every quarter to look for patterns and understand the industry and where it’s going.
This has been difficult to do in recent quarters, largely because of wide swings from one year to the next, and because traditional data used in measuring industry performance has all gone out the window.
Consider the first three months of 2022. Publicly traded chains’ first quarter same-store sales averaged 11.4% when compared with the same period in 2019. That’s an OK average in a normal three-year period. In this period, in some respects, it’s a remarkable success. It suggests the industry has more than recovered from 2020, when most restaurant chains lost huge numbers of customers and sales due to the pandemic.
Only 10 chains were down on a three-year basis (we did not include the casual-dining operator Darden, which does not report earnings until June 23). Twenty-six chains are up more than 10% over that period. That includes STK, the upscale steakhouse chain up more than 75%.
Every sector, meanwhile, is up on average compared with 2019. That includes casual dining, which is up nearly 10%, and quick-service, up more than 13%.
As we’ve noted many times, the industry has recovered more quickly than anybody imagined in the spring of 2020. Among chain restaurants, at least, much of the doom predicted in 2020 never quite came to pass. Though many restaurants closed and in some cases so did whole chains, the business has remained on stronger footing than expected. For more such evidence, check out our coverage of the Technomic Top 500 Chain Restaurant Report, where restaurants’ sales were up more than 8% over 2019.
At the same time, the data hides one key fact: The recovery has largely come from higher prices, and probably more so than you might even imagine. Check out this graphic:
Same-store sales vs. menu price inflation
Three-year average chain comparable-store sales versus food-away-from-home inflation since 2019.
Source: Restaurant Business, U.S. Bureau of Labor Statistics
The graphic compares the average three-year same-store-sales performance versus three years’ worth of menu price inflation.
That data suggests that consumers are paying considerably higher prices than they were three years ago. And with average sales lower than average menu price increases over that period, it means that publicly traded chains are trading traffic for revenues.
Put another way, they’re sacrificing customer count in the name of maintaining margins.
That’s a fair choice in the current business. Consider that food costs are up 13% in the past year alone. Margin compression has become such a problem that operators have little choice but to raise prices more aggressively than they have in the past.
Since the outset of the pandemic, many in the industry spoke of a shift in consumer behavior. Customers were visiting restaurants less frequently but were purchasing more items when they did. This practice has likely continued—even if it’s diminished some during the past several months as people return to work and to shopping centers. The growth in third-party delivery and an increased reliance on takeout means the order sizes are larger overall.
Yet that suggests traffic is down far more than the 2.6% decline implied by our calculations.
Five best-performing chains since 2019
Source: Restaurant Business
The question then is how much of this decline in traffic is due to consumers shifting their behavior, and how much of it is simply sticker shock.
The general consensus has been that consumers have ignored price because prices at the grocery store are higher. And indeed, inflation has been a major problem for approximately seven to eight months, and consumer reaction to these may be slow and certainly won’t necessarily show up in three-year same-store sales data.
In addition, it’s generally better for the industry if it can convince consumers to pay higher prices while coming in less often and getting more when they do. It’s more efficient and profitable and frankly too much of the business has been chasing customers while risking overall profitability.
But these prices aren’t yielding more profitability. And the lack of traffic means the industry is in fact on a weaker footing heading into what is a likely economic downturn.
Either way, the lack of any traffic recovery more than two years into the pandemic means the restaurant industry is nowhere near normal. Even if sales make it look that way.