Summer Slowdown Continues as Record-High Inflation Keeps Consumers Questioning Spend

This monthly insights report includes financial, workforce and guest trends affecting the restaurant industry.

New data from Black Box Intelligence confirms fewer price hikes positively impact intent to return, leading to an increase in guest traffic and sales

Restaurants are experiencing strong headwinds as the industry hits the peak Summer season. In response to inflation hitting a new 40-year high in June, consumers are, predictably, watching their wallets with extra scrutiny as gas, groceries, rent, restaurant prices, and more continue to rise. Although sales and traffic for the Summer were expected to come up short against last year’s pent-up COVID-19 demand (a windfall for restaurants after an intensely challenging 18-24 months), U.S. economic conditions continue to strain restaurant performance in every segment except for Quick Service.

Same-store sales Growth Lowest Since February 2021

Year-over-year guest counts have now been in a three-month decline (since March 2022), impacting sales and traffic. Same-store sales growth was +1.6% in June – a sharp decline from the +4.9% reported for May and the lowest it has been since February of 2021. Same-store traffic growth also fell but by a smaller margin than sales. Traffic growth was -4.8% in June – down from -2.9% in May.

Segment Performance Reveals Consumer Preferences

For the first time in over a year, segment frontrunner Fine Dining experienced its biggest drop in sales growth for June. Upscale Casual also saw a steep decline compared to May 2022. Quick Service was the only segment to experience year-over-year sales growth last month. While Fast Casual also saw a small decline in year-over-year sales growth, the segment managed to take the lead as the best-performing segment in same-store sales growth.

Last month’s segment performance paints a clear picture: price-conscious consumers are favoring the value-obsessed QSR and Fast Casual (Limited Service) segments.

Navigating Price Increases in the Face of Inflation

Of course, it’s not just consumers experiencing the urgent impact of June’s record-high inflation. Restaurants have been bearing the brunt in big ways – watching the cost of food, raw materials, gas, labor, and everything in between spike while already thin profit margins become even more pinched.

The most immediate response has been largely unanimous among restaurants: raise prices. The result? Industry-wide price increases have driven up check performance. Year-over-year, average guest checks grew by almost 7% in June – a rate double long-term norms.

Does that mean restaurants should continue raising prices to offset growing costs? Black Box Intelligence data suggests a more moderate approach to price increases will benefit restaurant companies looking to hold or strengthen their position in the market.

Black Box Intelligence Analysts investigated average guest check growth in Q2 2022 compared to Q2 2019. Restaurant companies reporting the lowest increase in guest checks (i.e. restaurant companies that represented the 25% with the lowest check growth) saw an increase in guest counts. All other restaurant companies reported negative traffic growth for the same period. Furthermore, the companies with the lowest check growth reported much higher traffic growth – a significant 16 percentage points over the 25% of companies with the largest increase in average check.

Guest sentiment data from Black Box Guest Intelligence provided deeper insight into what likely drove an increase in guest traffic for restaurants with the lowest increase in average check growth.

The restaurant companies with the lowest increase in checks reported value net sentiment that was almost 5 percentage points more positive than those with the highest check increases during Q2 2022. Guests of low-check growth restaurants talked about their experiences using more positive value-related words than the rest. Some of those words and phrases typically found in those positive value mentions included “worth it,” “reasonable” or “great prices.” Guests also took the time to specifically call out efforts to provide greater value using terms like “specials,” “deals” and “unlimited” promotions.

But the improved guest sentiment for those brands with the lowest check growth didn’t stop with just value. Inferred intent to return (analyzed through online review data) was an impressive 17 percentage points stronger over the restaurants with the largest increase in average checks.

The takeaways: Guests notice the continuous price increases and interpret the higher check as an erosion to the perceived value restaurants can offer. Higher prices negatively impacted the intent to return and resulted in fewer visits to those restaurants.

No doubt restaurants will have to straddle a fine line between necessary price hikes to protect already thin margins and the risk of turning consumers off, away, or toward segments or brands offering the right value.

When price hikes aren’t a suitable solution or, as the data suggests, a deterrent to positive guest sentiment and guest traffic, restaurants will need to find creative ways to cut costs and strategize on more sophisticated discounts, menus (menu engineering), and other price differentiation measures.

Outsmart Inflation: Give Guests the Offers and Experiences They Value Now

What kind of discounts are other restaurants in our segment offering? Are we running promotions or offers that attract guests back to our brand? Which menu item could we cut without guests reacting negatively? Guest Intelligence gives you all the unsolicited guest feedback you need to answer these questions and more. Click here to get a demo / talk to a solution specialist at Black Box Intelligence.

Turnover Rates See Tenuous Turnaround

If there’s any better news to report this month it comes from Black Box Intelligence’s Workforce data. Turnover rates eased in Q2 2022. A welcome relief after record-high management and non-management turnover for both Limited-and Full-Service restaurants – levels that accelerated rapidly in the second half and 2021 and peaked in Q1 of 2022.

Notable Trends in Non-Management Turnover

Limited-Service brands reported a decrease in turnover rates for non-management employees compared to the previous quarter. Similarly, the Full-Service segment posted a decrease in turnover for two consecutive quarters.

Management Turnover Trends in the Full-Service Segment

While non-management turnover decreased slightly, management turnover did not follow a similar trend. Management turnover remained at peak levels for the Full-Service segment. If there was any tailwind for management turnover it’s the fact that rates appear to have climaxed and are holding at current rates compared to the rapid acceleration experienced last year.

Although falling or flat turnover rates beat the alternative – the reality is that turnover remains high and staffing stores will remain a critical challenge. Although Black Box Intelligence Analysts anticipate a slow decrease in turnover rates in the coming months and quarters – they are unlikely to return to pre-pandemic levels in 2022. The labor market will remain tight as restaurants compete with other industries for labor and contend with workforce participation rates that are not expected to return to pre-COVID levels.

Understanding the Out of the Box Insights

  • Financial metrics are based on year-over-year growth unless otherwise noted.
  • Off-premise sales include to-go (pickup), delivery, and drive-thru (where applicable).
  • Limited service includes quick service, and fast casual.
  • Full-service includes casual, family, upscale casual, and fine dining.
  • Limited-service segments: quick service and fast casual.
  • The Western region does not include California, California as a state is considered its region.