Consumer Confidence Surges, But Restaurant Traffic Down 3.3% in November
Consumers are beaming about the economy, but they’re still not going to restaurants.
According to restaurant research firm TDn2K, same store sales sank 1.3% in November, with a three-month rolling trend of negative .9%. With November’s numbers, it’s been nine months of consecutive comp declines. The main factor has been traffic, which sank 3.3% in November, just slightly better than the negative 3.4% in October. Year-to-date, traffic is down 3%. According to a December 6 report from NPD, total foodservice visits declined 1% in the third quarter.
Restaurant analyst Bonnie Riggs said traffic “has come to a standstill and quick service restaurants, which have been the traffic growth drivers, are now experiencing a slowdown in visits.”
QSR visits—which account for 80% of foodservice visits—dipped for the first time in five years.
Malcolm Knapp’s Knapp Track added some more dismal numbers to the mix. Knapp reported that casual dining restaurant comps were down 2.6% and guest counts were down 4.4% in November.
And while all that’s happening, consumers are especially rosy about the economy, the index of consumer sentiment hit 98 in December, a 5.8% rise from last year. Consumer expectations also jumped 7.8% to 88.9.
There were a few exceptions to the optimism, namely in the Northeast and among those with a college degree, though even they were not pessimistic about the economy, according to the survey.
In fact, the survey’s chief economist Richard Curtin told the Wall Street Journal that, “No group has adopted a pessimistic outlook for the economy.”
Why are they so rosy? Well, maybe because they’re not spending money at restaurants, which have seen tickets rise about 1.9% at the counter and 1.8% at sit-down restaurants, according to TDn2K. Knapp also saw a 1.8% implied check bump. Those who have stayed, interestingly enough, are paying more, according to the research firm. It found that 57% of the companies it researched, the guest check outpaced menu prices by 1.4%.
Maybe that’s consumers who didn’t realize prices had gone up so much or maybe it’s consumers splurging when they do end up at a restaurant, time will tell.
Consumers are, however, buying grocery store food. At Kroger for one example, sales have been up more than 7% in the last two quarters.
Still, there are some big winners among differentiated concepts as consumers look for reasons to go out, not just a place to eat on their shopping trip.
Dave & Busters (NASDAQ: PLAY) stunned investors with an incredible quarter, with comps surging ahead 5.9% versus a consensus of 2.3%. Margins also beat consensus at 26% restaurant-level margins, despite wage pressure and new-store inefficiencies, according to a report from analyst Andy Barish at Jefferies.
Fogo de Chou (NASDAQ: FOGO) slipped, comps falling 1%. Traffic, however, grew by .9%, beating the high-end steak category by 230 basis points.
High-value also proved better than discounting in QSR, at least for Del Taco (NASDAQ: TACO). Even with wage pressures from the high number of California units, comps grew by 6.8%, and president and CEO Paul Murphy said transactions are up 2.9% on a two-year basis.. He said it was due in part of the company’s “combined solutions” program, designed to broaden “our occasion set by fully leveraging our QSR+ offerings,” said Murphy, who said the new item “saw nice success in mix across day parts, it really did well across all six.” He said the company would be more judicious on price increases despite the success to maintain their value position.
And for all those shoppers who aren’t leaving the house (who goes to malls anymore?), delivery reigns supreme. Domino’s (NYSE: DPZ) continues to shine. It racked up another double-digit comp for the third quarter at 13%, leveraging a strong technology program and encouraging ease over all else. Similarly, the emergent third-party delivery market sent more of diner’s dollars to local independent restaurants.
Those differentiated companies beat the broader list of public companies by a healthy margin in the last three months.
And anecdotally, independent darling Punch Bowl Social had a line out the door for opening night festivities in Minneapolis. The bowling, karaoke and gaming gastropub, was about the only thing with any customers nearby aside the grocery store.
So where is the disconnect between consumer sentiment and restaurant performance? There isn’t one. Millennial consumers are just not going to pay a premium for the same old restaurant. Good food, to them, is table stakes, and a new guard is beating the broader segment by differentiating with better food, entertainment and better technology.
On top of that, older demographics just aren’t eating out at their casual diners as much, and are choosing fewer incremental drinks and add-ons when they do.