The Curious Conundrum Of Sliding Chain Sales

A big story in foodservice in the U.S. this year has been a rather precipitous decline in same-store sales and traffic counts for many chain restaurant operators. Chain performance tracking services such as Miller Pulse, TDn2K’s Black Box Intelligence, Knapp and others have reported fairly consistent declines since February of this year. In a report in NRN a.m. Oct. 14, Black Box, which covers more than 130 chains controlling nearly 25,000 units, said traffic was down 3.5% year-over-year in September, while same-store sales were off 1.1%. Year-to-date, sales are running negative at -0.6% on a 2.8% decline in traffic. Such numbers led one restaurant stock analyst, Paul Westra of Stifel in Chicago, to declare in July a “restaurant recession” as he downgraded 14 restaurant chain stocks.

We have no reason to doubt these numbers, though we have pointed out such research covers a small sample of the total restaurant universe. Miller Pulse has about 38,000 units in its database while, as mentioned, Black Box has 25,000. There are 625,000 restaurants in America, according to The NPD Group’s ReCount restaurant census.

Still the trend seems quite clear, and we don’t want to ignore its implications. Chain trends are usually the leading indicator for foodservice. And the slowdown is apparently being more widely felt by restaurant operators generally. Current same-store sales and traffic indices in the National Restaurant Association’s Restaurant Performance Index have been in negative territory since May and took a big hit in the August survey. The RPI’s labor indicators also fell into negative territory during the month.

What stumps us is just that the slowdown is so curious. There are lots of other data that paint a different picture of foodservice activity. First, the general economic factors that drive restaurant spending remain very, very positive. Employment and wage growth are still strong, most households are experiencing continued income growth, consumer confidence is at very high levels and rose again in the September readings from both the University of Michigan and The Conference Board.

The foodservice-and-drinking-place sales numbers that are part of the U.S. Census Bureau’s monthly retail sales reports have shown consistently strong growth all year. In the September Advance Report, foodservice sales rose 0.8% from August and are running 6.1% ahead of a year ago September. This follows a 0.7% gain in August. On a seasonally adjusted basis, total sales reached $55.6 billion in September, a new record. Restaurants and other foodservice establishments continue to add jobs, as well. For the second month in a row, restaurants hired nearly 30,000 new employees in September, according to the Bureau of Labor Statistics. The industry has added more than 300,000 new employees in the past 12 months.

Chain executives have been blaming the slowdown on the turmoil of the current election cycle. Interestingly, operators polled by NRA for the RPI expect to see future same-store sales increase by a two-to-one margin. There’s been lots of discussion that chains have simply overbuilt, that there are too many seats chasing too few customers. That may well be true. What is clear is that the fundamentals remain positive.