The Black Box Intelligence (formerly TDn2K) third quarter State of the Restaurant Industry webinar discussed trends from the first half of 2016 and the latest Restaurant Industry Snapshot™. Speakers included: Joel Naroff, Black Box Intelligence (formerly TDn2K) Economist and President of Naroff Economic Advisors; Victor Fernandez, Executive Director of Insights and Knowledge at Black Box Intelligence (formerly TDn2K); and Wally Doolin, Chairman and Co-Founder of Black Box Intelligence (formerly TDn2K).
Here are some of the key data points from the Restaurant Industry Snapshot for June 2016:
- Comp sales growth was -1.1 percent in June and -0.7 percent for second quarter
- Traffic growth for second quarter was -3.0 percent
- Food and alcohol comp sales were down for both June and second quarter
- Turnover increased again at both the hourly and management level in May
- Hourly turnover rates have not decreased since September 2013
Check out our recent video for more snapshot highlights:
Naroff kicked off the discussion with an overview of the U.S. economy and how it has affected restaurant growth in the first two quarters of 2016. The first issue he addressed was the evident slowing of the economy and the concerns that a recession is in the forecast. “A significant number of people are wondering whether or not we are looking at a recession as we go through the second half of the year. My view is that is not in the cards by any means.”
Despite the warning signs, Naroff explained that job gains, which had dramatically slowed in April and May, turned around quite sharply in June. Overall, job gains throughout the year have remained moderate, which indicates the job market is still in pretty good shape. Likewise, consumer confidence was very strong at the end of June.
In terms of the restaurant industry, sales growth is closely correlated with income growth. Throughout 2014 and 2015, the industry experienced a surge in restaurant sales that was paired with moderate income growth. Now, however, income growth has stabilized, which has resulted in restaurant sales growth decreasing from elevated levels throughout this year. What does this mean for the coming quarters? “Expect sales to increase at trend rates, which should intensify the battle across sectors – as well as within the restaurant sector – for the consumer’s dollar.”
“A significant number of people are wondering whether or not we are looking at a recession as we go through the second half of the year. My view is that is not in the cards by any means.”
Sales and Traffic
The restaurant industry just experienced its second consecutive quarter of negative comp sales, which has not happened in over two years. Fernandez explained that Financial Intelligence (formerly Black Box Intelligence) comp sales have been trending downward since the middle of last year, with a sharp drop in the first quarter of 2016.
Additionally, looking at a two-year basis, restaurants have experienced a four percent loss in traffic growth.
Some dining segments are performing worse than others. Fast casual, casual dining and family dining segments all reported negative comp sales in the second quarter. On the other hand, quick service and fine dining both saw positive growth. Quick service had the highest percentage of companies with positive comp sales growth, while fine dining had the highest percentage of companies with positive comp traffic growth. It is important to note these segments also had the lowest guest check growth. On the quick service side, this is likely due to the aggressive pricing and value that customers are now favoring.
Turnover continued to increase at both the hourly and management levels in the second quarter, with management turnover rates now trending higher than prior to the recession. Quick service, fast casual and casual dining all reported hourly turnover rates over 100 percent last quarter, and quick service reported the highest management turnover rate in the industry at over 50 percent.
On a national basis, the southwest and midwest regions are suffering the most from high turnover rates. States such as Texas, Oklahoma, Tennessee and Kentucky experienced very high turnover rates in both counter service and full service restaurants during the first quarter of the year. Meanwhile, states in the western regions, such as California, Nevada and Arizona reported much lower turnover during the first quarter.
Finally, restaurants are now struggling to adapt to the recent Fair Labor Standards Act (FLSA) regulation changes on overtime. In a recent Workforce Intelligence (formerly People Report) survey, 64 percent of quick service restaurants reported that over half of their general managers will be affected by these changes. In response, restaurants are considering a variety of options that include increasing employee pay to meet the new guidelines and reclassifying affected employees as hourly. Reclassifying employees is the number one strategy for table service brands, while the majority of quick service restaurants are opting to increase pay.
Read more about how restaurants are dealing with the new FLSA overtime regulations here.