Restaurant Industry Snapshot™ – October 2021
Navigating the Shifting Landscape of Restaurant Sales and Traffic in October 2021
Restaurants continue to post better sales results than they did in 2019, but the rate at which sales have been increasing peaked earlier this year and is now moderating. Sales growth was 6.0% in October, a small slip from the 6.3% reported for September. Sales growth averaged 6.6% in Q2 and peaked at 8.2% in July.
Traffic continues to be a concern. Traffic growth was -6.4% in October, a decline of 0.2 percentage points from September. October was the worst month for the industry for traffic growth since the -9.4% reported in March when vaccines were still early in their rollout and consumers were significantly more cautious.
The average check has grown at a highly accelerated pace since the beginning of the pandemic and picked up steam in October. Check grew by 5.6% year over year, a jump of 0.5 percentage points from September and the largest growth rate since April. On a 2-year basis, the average check grew by 13.7% in October. Although this represented a drop from the 14.3% reported for September, these two months have the largest 2-year check growth on record that Black Box Intelligence™ has ever tracked.
Regional & Market Performance
Only 6 states were not able to achieve positive sales growth during October.
These states are Wisconsin, Connecticut, Vermont, North Dakota, Alaska, and Hawaii. The District of Columbia also suffered negative sales growth. Still, most of the states (26) saw their sales growth decline in October compared to the previous month.
The best-performing regions of the country based on sales growth in October were the Southeast, Western region (which excludes California), Florida, and the Southwest. The regions with the weakest sales growth during the month were New England, New York-New Jersey, the Midwest, and the Mid-Atlantic.
The Restaurant Workforce
Job Growth & Turnover
Restaurants adapted to the mounting staffing crisis by increasing the wages they are offering their employees at a pace not seen in many years, but the latest data shows despite pay increases in the 10% range, staffing levels have not changed much as of September. Furthermore, things may be getting worse for some industry segments.
Limited-service restaurants are operating each of their locations with an average of 1.6 fewer employees than they did in 2019. But that reduction in staff was slightly better at an average of 1.0 fewer employees during the period between June and August of this year, meaning staffing worsened in September. In full-service restaurants, staffing levels also worsened slightly in September. On average, full-service companies are operating their restaurants with 5.5 fewer employees per location in the front-of-house, and almost 2 fewer in the back-of-house. These are the worst staffing levels for full-service since June.
A driving factor behind the staffing crisis continues to be skyrocketing turnover among restaurant employees. Hourly turnover in limited-service brands increased by more than 20 percentage points as of September compared to Q1 of this year. The increase in full-service hourly employee turnover was 13 percentage points over the same period.
Limited-Service Growing Sales at Three Times the Rate of Full-Service
Limited-service restaurants continue performing much better than full-service in sales growth. Sales growth for limited-service brands was 10.6% in October, while growth for full-service restaurants was a much softer 3.4%. Sales growth for both of these sectors of the industry remained relatively unchanged compared to September.
Fine dining is the industry segment that remains the top performer based on sales growth. This segment has been the industry leader since May.
Family dining was the only segment that posted negative sales growth during October. This segment has been able to post just one month of positive sales growth since the beginning of the pandemic in July 2021.
Dine-In and Alcohol Sales Have Not Yet Recovered
The industry’s positive sales growth momentum is almost exclusively from booming off-premise sales growth. Dine-in sales have not yet returned to 2019 levels for most segments. Only fine dining has been able to achieve positive dine-in sales growth since the beginning of the pandemic.
Dine-in sales for full-service restaurants were down by almost 9% compared with October of 2019, while dine-in was still down by a huge 28% in the case of limited-service brands. Both improved by a little less than 2.0 percentage points compared with the previous month.
Alcohol sales are also down compared to 2019, but there have been some improvements at the segment level. While casual dining is still suffering from double-digit drops in its alcohol sales, both fine dining and upscale casual posted positive alcohol sales in October.
Looking Ahead
Mixed signals coming from the economy. While GDP growth slowed down considerably in the 3rd quarter, consumer confidence improved in October after declining the last few months. The labor market continues adding jobs, but high inflation is hurting the purchasing power of consumers.
Speaking of purchasing power, the exorbitant increases in restaurant guest checks will likely hold back restaurant traffic from improving much further. “Consumers, especially those in lower and mid-income levels, may want to dine out or order food from their favorite restaurants, but the rapidly rising prices mean they will likely have to cut back on some of those dining occasions or trade down to some lower-priced options,” said Victor Fernandez, vice president of insights for Black Box Intelligence.
Additionally, restaurant sales in November of 2019 were very strong (the month had the highest sales growth that year), which translates into a tougher comparison to lap over this year.
“We expect sales and traffic to soften a bit in November but remain optimistic that some of these adverse conditions may be offset through a strong holiday season,” continued Fernandez. “We saw it back in May when there seemed to have been a jump in restaurant sales due to the pent-up demand for celebrating special occasions such as Mother’s Day and graduations. After skipping many of those special dining occasions in 2020, we hope to see an uptick in sales growth to close out the year.”