Nation's Restaurant News / Jonathan Maze / May 17, 2016
Restaurants have had a slow start to 2016, which is something of a surprise given the state of the consumer.
Consumers are spending money. Gas prices are low. And unemployment is hovering around 5 percent.
Plus, the weather has been good and the industry benefitted from a glorious extra day of sales in the form of Leap Day in February.
And yet, with the vast majority of restaurants having reported their early-year sales, we get this decidedly mediocre same-store sales average of 1.3 percent. Not all companies report traffic numbers, but it’s a good bet that average traffic was flat, at best.
Numerous executives, even some with relatively strong-performing concepts, were quick to mention the state of the consumer, or of the economy, to suggest the direction of restaurant same-store sales.
“The consumer does continue to be cautious,” The Wendy’s Co. president Todd Penegor said during the company’s earnings call. “There has been little or no wage growth. You’ve got general election uncertainty. So it’s been hard to really pinpoint what’s driving that.”
Lonnie Stout, CEO of upscale-casual chain J. Alexander’s, said the concept’s 3-percent same-store sales decline in the first quarter reminded him of the recession. He noted that sales were weak in markets that were also weak back then.
Stout also suggested that the economy was to blame, saying that GDP increased a meager 0.5 percent in the first quarter.
“I think the economy stunk in many markets,” Stout said. “If GDP was up a half a point in the first quarter, there were a lot of markets with a negative GDP.”
But the story is more nuanced than it appears.
For one thing, the numbers were skewed this quarter by a particularly gruesome, 29.7-percent same-store sales decline at Chipotle. Take that out of the calculation, and the average same-store sales report was 1.8 percent.
And the industry is comparing itself against a particularly strong quarter from a year ago, when the average same-store sales increase was 4.8 percent and all but a small number of companies were in positive territory.
On a two-year basis, in fact, same-store sales rose 6.1 percent.
Quick-service restaurants rule
The “big three” quick-service restaurant chains — McDonald’s, Wendy’s and Burger King — all finished with strong same-store sales in the quarter, with McDonald’s rising 5.4 percent, Burger King increasing 4.4 percent, and Wendy’s gaining 3.6 percent.
Add to that the strong, 6.5-percent increase that Sonic Corp. reported in its second quarter ended Feb. 29, and traditional burger chains ruled the first quarter.
To be sure, the performance wasn’t broad-based. Jack in the Box saw same-store sales fall 1 percent.
But the results demonstrate that consumers are still willing to dine out at old standbys, especially when those brands offer deals. All three of the big burger chains offered discounted meals in the quarter.
Overall, quick-service same-store sales rose 2.7 percent in the first quarter. That figure doesn’t include numbers from Popeyes Louisiana Kitchen Inc., which has yet to report.
Publicly traded fast-casual chains might have had their weakest quarter since, well, ever. But it’s not as bad as it seems.
Same-store sales at such concepts, not including Zoe’s KitchenInc., which has yet to report, grew a meager 0.3 percent.
But Chipotle Mexican Grill wrecked the curve. Its 29.7-percent decline in same-store sales in the first quarter pulled the entire group down. Excluding Chipotle, the sector’s same-store sales rose 3.3 percent.
That’s still weak, considering the sector is in growth mode and given the decline at Chipotle.
So where did customers go after the burrito chain’s food-safety problems? Many went to Panera Bread Co., which reported a 6.2-percent same-store sales increase. Perhaps a few went to Shake Shack Inc., which saw a 9.9-percent same-store sales increase on top of an 11.7-percent gain the previous year. Most likely, customers scattered and went everywhere.
Consumers like breakfast
One lesson from this quarter is that consumers really like eggs, bacon, pancakes, sausage — and coffee.
As a segment, the coffee-and-snack segment finished with the best average same-store sales performance, at 3.6 percent, led by Starbucks Corp.’s 7-percent same-store sales growth.
McDonald’s same-store sales growth in the quarter came largely from the success of its morning daypart, along with all-day breakfast sales.
And family-dining chains continued to generate positive same-store sales. IHOP had “very substantial growth in breakfast,” said Julia Stewart, chairman and CEO of parent company DineEquity Inc., “and not so much in lunch and dinner.”
Casual dining still struggles
The weakest segment remains casual dining, where same-store sales averaged 0.7 percent. Of the 35 concepts reporting so far, 16 saw same-store sales decline.
Particularly weak was the bar-and-grill niche. Applebee’s, Chili’s, Ruby Tuesday and Del Frisco’s Grille all reported declines.
“From the consumer’s perspective, there’s a sea of sameness in casual dining,” Stewart said.