Financing

Why are restaurant sales so bad in July?

Weak sales and traffic for the second July in a row could spell bad news for the industry, says RB’s The Bottom Line.
Photograph: Shutterstock

The Bottom Line

Yesterday, I wrote about the latest Black Box Intelligence index, which found that same-store sales rose just 0.5% in July—despite the year’s easiest comparison, as same-store sales fell 3% in the same month a year ago.

And traffic fell 1.8%, despite a 4.8%, easy-comparison decline in July 2017. Add that together and you get a 6.6%, two-year decline.

That is bad news. As we have said a lot, the industry should have the wind at its back given the state of the economy and low unemployment, in addition to tax cuts that were supposed to provide some sort of boost to sales by now.

But why July, in particular, was tough remains something of a mystery.

One theory of mine is the barbecue grill. Gas and charcoal grills, at least theoretically, could be pulling away sales in the month, especially when the weather is nice. And people grill food like burgers and steaks that are popular restaurant menu items.

Some seven in 10 Americans own a grill or a smoker, according to the Hearth, Patio & Barbecue Association, and July 4 is the most grill-heavy holiday, with 63% of grill owners planning to use their grill or smoker during the holiday.

But grill sales are actually down from where they were a decade ago and have crept up slowly since the recession. So there’s little reason why industry sales would have suddenly started falling more recently.

As Victor Fernandez, vice president of insights and knowledge at Black Box parent company TDn2K, told me, another explanation is that consumers are shifting more spending to independents.

It’s true that independents and small chains have taken more business in recent years as consumers look for more experiences. And ratings sites such as Yelp have removed some of the mystery associated with using a restaurant chain.

John Gordon, a restaurant consultant out of San Diego, says that consumers have “chain fatigue” as large concepts have rapidly expanded.

Broad numbers show, in fact, that consumers appear to be returning to restaurants this year. Industry sales rose 8% in June, according to federal retail sales data. That was the highest rate in more than three years.

Monthly restaurant sales rose just more than 5% on average in 2016. That slowed to an average of 3.3% in 2017. Those sales appear to have rebounded thus far in 2018: On average, monthly restaurant sales have increased 4.3% through June.

Given weak numbers at chain restaurants according to both Black Box and the Technomic Chain Restaurant Index, that suggests consumers are returning to restaurants, but they are returning to independents and small chains that are not captured by those data sets.

That doesn’t really explain the issue in July—retail sales data for the month is not yet available. But July is a strong travel month, and travel overall is up. If consumers really are shifting more of their spending toward independents and small chains, especially as they visit places and look for new experiences, it’s entirely possible that the trends would be more pronounced during that month.

Or maybe, as Fernandez said, this is all just an anomaly.

Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.

Multimedia

Exclusive Content

Financing

Noodles fixes its sales, and its stock takes off

The Bottom Line: The fast-casual noodle chain, which needed a reverse stock split earlier this year to remain listed, has seen its shares take off along with sales as investors make bets on comebacks.

Food

The Beard Awards might have sacrificed their own prestige for the sake of the industry

New criteria introduced in recent years have made the awards’ meaning less clear, but they have allowed for recognition of a wider range of players.

Technology

DoorDash wants to help diners find the right restaurant

Tech Check: The delivery app has a new AI-powered search tool that it hopes will put an end to endless scrolling. We put it to the test.

Trending

More from our partners