Don’t go out and buy a new surfboard, but use the one you have and enjoy the ride!

[img id=”1″ align=”left”] August 2014 same store sales results for the Financial Intelligence (formerly Black Box Intelligence) Industry Index, as reported in Black Box Intelligence (formerly TDn2K)’s “The Restaurant Industry Snapshot”, are the best results since February 2012. The Financial Intelligence (formerly Black Box Intelligence) Index with more than 19,000 units reporting in all five segments recorded a positive 2.1% comparable sales growth and an improving but still negative traffic of negative 0.5%.

It has been a long year already, but finally we have the possibility that the macro economy and good restaurant strategies are aligning for improved results. I don’t need to state the obvious of how good that feels to anyone living and dying looking at comparable sales every day and week.

The rational question is this: an anomaly or is the nightmare over? We believe that this is truly good news and not an anomaly. However like all good news we feel compelled to fill in the story with some balance. Here are some of the factors affecting better results:

The economy is showing signs of strength during the month and hopefully will continue for the rest of the year. The University of Michigan Consumer Sentiment Index hit a seven-year high in August. Further evidence is improvements in the labor market, a surging stock market, robust momentum in manufacturing growth, lower gasoline prices and strong housing sales.

Additionally, one of the most important key indicators for the restaurant industry is disposable personal income, which also accelerated its growth during July at close to 2.0% annual growth.

Joel Naroff, President of Naroff Economic Advisors and Black Box Intelligence (formerly TDn2K)’s retained economist, made this observation in our Q-2 members Industry Update webinar: “By late fall, the unemployment rate should be under 6% and wage gains would then start accelerating.” That will trigger stronger consumption and hiring, further increasing growth. Rising incomes should support growing restaurant sales by year’s end, but business reluctance to raise wages may push out the time frame.

From an industry data standpoint, as we stated in our Black Box Intelligence (formerly TDn2K) Q-2 industry analysis, we have easier comparable sales to roll over for the balance of the year. In 2013 we posted a flat Q-3 and slightly negative 0.1% in Q-4. Supporting the hope that there is breadth to the good news was also evident as August showed positive comparable sales in all 11 regions and 154 DMAs out of 188 DMAs reporting. By the way, the top quartile had a very robust August; the strongest since November 2013.

In addition to the acceleration of same-store sales, Workforce Intelligence (formerly People Report)’s latest numbers also show a significant increase in new jobs created by the restaurant industry. July posted a 4.4% year-over-year growth in restaurant jobs.

Ok, why not buy the new surfboard with this great surf to ride?

Three key reasons that impact margins are higher commodities, lagging traffic and a tightening labor market. We are not the experts on commodities, but at Black Box Intelligence (formerly TDn2K), we have yet to show positive traffic in 23 quarters of reporting on our 110+ brands and 45+ billion in revenues. We also know that price and mix continues to rise 2-3% per year. That supports the world we live in as a mature market share battle industry.

On the labor side, the industry also continues to face growing challenges from the staffing perspective as both restaurant manager and hourly employee turnover rates persist on the upward trend of the last few years. According to the Workforce Intelligence (formerly People Report) Workforce Index, expectations of recruiting difficulties, growing number of vacancies and rising turnover levels will continue throughout the rest of year. For our business to improve, other industries need to hire and raise wages to support our sales increases.

I hope you enjoyed August and we are hoping we don’t have a hurricane causing a spoiling storm surge this fall. It looks like the surf could just be optimal for a good finish for the year and some momentum for 2015.

However, keep your balance on your winning strategies, because hope is not a strategy!

BoomerCEO