This is how common negative traffic has become lately: Flat is just as good as up.
At least that’s how it seems after a flurry of earnings reports last week. While a few brands, notably a couple of quick-service chains, were able to say they grew traffic, for the most part the industry is pretty happy with themselves if they simply avoid losing customers.
Burger King “has actually been performing above the industry in the last couple of months,” Josh Kobza, CEO of the burger chain’s parent company, told analysts last week. Popeyes and Sweetgreen were other brands that were able to generate “flat” traffic, as was Wendy’s.
“Category traffic was challenged throughout the quarter,” Wendy’s CEO Todd Penegor told analysts.
Quick-service and fast-casual chains have been able to get some customers through trade-down, as some customers shift spending from casual dining and midscale concepts into fast food. But, “we’re also seeing some trade out of the category from the lower income consumer out of QSR and into food at home,” Penegor said.
And many chains have seen traffic declines as a result. Transaction count at Portillo’s declined 3.5%, for instance, while Domino’s and Pizza Hut struggled just to get to flat same-store sales. Even McDonald’s, where same-store sales grew 8.1% in the U.S. last quarter, turned “slightly negative” after boasting growth in previous periods.
“The consumer is more discriminating because of the price pressures they’re facing as well as interest rates, things like that,” McDonald’s CEO Chris Kempczinski told analysts. "That pressure is felt more on the lower-income consumer,” he said, or people making $45,000 per year and under.
To be sure, a few brands were able to buck this trend, notably Starbucks, where transaction count increased 2% last quarter. The coffee giant’s “demand,” which also includes customization orders, customers adding food to their items and mix shift, accounted for most of its same-store sales growth last period.
Then again, Starbucks consumers tend to be less discerning about price, given that they’re spending several dollars for a cup of coffee and are apparently OK with adding $1 pumps of flavorings as well.
Papa Johns’ 3% same-store sales growth last quarter came through transactions, arguably the more impressive result in an otherwise dismal period for customer and traffic counts.
Indeed, CEO Rob Lynch noted that his chain has focused on avoiding aggressive price increases, believing consumers ultimately notice everyday value.
“We have watched as many restaurant brands have increased menu prices,” he said. “We have found other ways to drive restaurant profitability and have executed a thoughtful approach to managing price and promotions. As a result, we believe our products offer an attractive value proposition to customers compared with other QSRs.”
As we pointed out yesterday from the Global Restaurant Leadership Conference, U.S. consumers are paying more for their food than historical norms. Restaurant prices are increasing at rates faster than inflation. And it’s causing considerable consternation in the process, fueled by social media as people see obscene prices for Big Mac meals in Connecticut rest stops and draw broad conclusions about the state of the industry.
Consumers love restaurants and will continue to dine out. But they are already doing so less frequently and could cut further in the coming year. And maybe even flat traffic will prove harder to achieve.