The consumer is clearly not worried about a recession, at least based on their restaurant spending.
A string of restaurant chains reported earnings recently or said in interviews that their traffic has been particularly strong so far in 2023.
Texas Roadhouse said it had record traffic in January and into February. “It’s been a really consistently strong performance throughout the seven weeks,” said Michael Bailen, senior director of finance, as our Joe Guszkowski reported.
At Golden Corral, traffic was up 27% and the buffet chain many left for dead during the pandemic is now enjoying sales that are above pre-pandemic levels. “Much of the industry had written us off, and many of the media prognosticators had written us off,” CEO Lance Trenary told our Peter Romeo.
Shake Shack, meanwhile, said its same-store sales rose 17% with traffic growth up in the “double digits” in January, per our Lisa Jennings, who also noted that another fast-casual brand, Chipotle, has enjoyed a similarly strong start to 2023. In its case, that followed a lackluster fourth quarter.
Our initial inclination upon seeing such numbers was to dismiss it as easy comparisons. It’s difficult to remember now, but January 2022 was a weak month for restaurant sales, thanks to a surge from the omnicron variant of the coronavirus. That was Shake Shack’s explanation for its January results.
But then we looked at sales data. Restaurant and bar sales rose 7.2% in January to $95 billion. It was up 24% from levels of a year ago. What had been an apparently weakening demand for restaurant meals in recent months turned around in a hurry. It also explains why I can’t get reservations at some hot local restaurants for the next few weeks.
What’s going on? Weather likely has something to do with both the poor December and the strong start to January.
Many of us might forget—I would like to—but the end of December was brutal from a weather perspective. A “bomb cyclone” at the end of the month led to freeze and wind chill warnings across the country. One tends to resist dining at a restaurant when worried about the potential loss of limb from unseasonably cold weather.
January, meanwhile, was warmer than normal, especially in the Northeast.
Weather is a perpetual factor in restaurant sales, though one we tended to dismiss in the post-pandemic environment because many of us were more occupied with dine-in closures and COVID surges and shifts in consumer behavior. We weren’t all that focused on old-fashioned snowstorms and their potential impact on restaurant sales, but it is still there.
Regardless, the January data does tell us that consumers are doing far better than we give them credit for. “Overall, the consumer, whether it’s in Europe or the U.S., is actually holding up better than we would have probably expected, or maybe what I would have expected a year ago or six months ago,” McDonald’s CEO Chris Kempczinski told investors late last month.
Or maybe six weeks ago. Much of the prognostications on this year has been one of a retreating consumer and Kempczinski’s own comments followed those of his CFO, Ian Borden, who said McDonald’s is still expecting some form of consumer pullback this year.
And Fitch Ratings, for instance, suggested this could be a weaker year for restaurant sales. Broadly, many of us feared that high prices would drive consumers away.
Some of that may be happening, to be sure. Executives still note that some lower-income consumers are changing their behavior, largely by ordering less expensive items or choosing less expensive options. But that is not happening on a broad scale right now. Overall retail sales were up 3% in January, and 6.4% from year-ago levels.
The economy, as we’ve said before, is not acting as if a recession is imminent.