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In Black Box Intelligence (formerly TDn2K)’s™ (Transforming Data into Knowledge) quarterly State of the Restaurant Industry series, the team was delighted to welcome back seasoned presenters Joel Naroff, Victor Fernandez and Bob Rycroft. The October presentation and conversations were about market performance and labor trends from the third quarter of the year and a look at what to expect in the fourth quarter. Joel Naroff is the president and founder of Naroff Economic Advisors and chief economist for Black Box Intelligence (formerly TDn2K), Victor Fernandez is the Executive Director of Insights and Knowledge and Bob Rycroft is the newly appointed Managing Director at Black Box Intelligence (formerly TDn2K).

The presenters briefly discussed results from the Financial Intelligence (formerly Black Box Intelligence) September Industry Snapshot. Some key takeaways include:

  • Comp traffic for Q3 was still negative at -1.2 percent
  • Comp sales for Q3 was 1.5 percent, down 0.3 percent from Q2
  • Year-over-year job growth was at 4.6 percent in Q3, compared to 3 percent in Q2
  • Although the restaurant management turnover rate seems to have stabilized for now, both management and hourly turnover rates are still extremely high

See full snapshot here.

The webinar opened with a recap on the macroeconomic environment and an outlook on expected conditions for upcoming months. Naroff commented on current restaurant sales gains, noting that total sales gains remain strong year-over-year, but recently have begun to decelerate. Despite regained consumer confidence and relative optimism post recession, this slowdown is being caused by the lack of significant wage gains. The recovery of the economy is not being experienced across the board; there is a significant variance in job growth between states. “We have maybe a third of the states growing at a solid pace, and then 40 to 45 percent that are growing modestly to minimally. This subsequently translates into the regional differences in unemployment rates and income growth,” observed Naroff.

Another recent trend affecting restaurant sales is the decline in oil and natural gas prices. An article by Ron Ruggless from Nation’s Restaurant News titled “Restaurants in nation’s oil patches note sales pressure” discussed how restaurants in the nation’s oil patches, such as Alaska and Texas, experienced a decrease in same-store sales in the third quarter. “The lower gas and oil production prices have led a number of producers to make significant layoffs. These layoffs have increased unemployment and decreased disposable income in the affected regions,” Ruggless explained.

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Fernandez noted this in the webinar, examining the drop from 1.8 percent comp sales in the second quarter to 1.5 percent in the third. Additionally, although there was a slight increase in comp traffic from Q2, it still has a long way to go before reaching positive growth again. At the same time, the average guest check is going down, which could be due to an increase in promotional discounts.

Looking into the fourth quarter, Fernandez is expecting some challenges in meeting positive comp sales growth, namely the possibility of bad weather negatively impacting sales and traffic. If restaurants lose a week or two of good sales to bad weather in this next quarter in significant parts of the country, the industry could end up with negative comp sales during the last quarter of the year. However, if this coming winter is mild and comparable to last year, then the consumer confidence and improved labor conditions that Naroff mentioned should be sufficient in driving the industry towards positive results for the end of the year. What is certain, continued Fernandez, is that the overall comp sales growth result for 2015 will be a significant improvement over last year’s growth rate. Year-to-date comp sales have grown by 2.1% during 2015 as we head into the fourth quarter compared with just 0.6% comp sales growth reported for all of 2014.

In spite of the challenges restaurants will potentially face in the final quarter of the year, there is still a great deal to be optimistic about. The continuing growth of year-to-date comp sales and increasing consumer confidence bodes well for restaurant operators. The key factors to focus on will be maintaining positive traffic growth and reducing turnover rates.