While positive signs are emerging, the restaurant industry remains a volatile environment for operators, as May’s results showed. Same-store sales declined 1.1 percent across chain restaurants—a 0.1 percentage point drop from April. More troubling, the industry has now reported negative gains every month since February 2016, according to TDn2K’s The Restaurant Industry Snapshot, a report based on weekly sales from more than 27,000 restaurants, 155 brands, and $67 billion in revenue.

Yet again, traffic was disconcerting. Same-store traffic decreased 3 percent in May. This was actually 0.2 percentage points better than April. However, the growth in check average was lower than it has been in recent months, which is why, TDn2K says, sales growth fell in March versus April.

“The industry is clearly still struggling, but there is some optimism based on the latest results,” says Victor Fernandez, executive director of insights and knowledge for TDn2K. “Both sales and traffic growth quarter-to-date at the end of May show improvements over the first quarter and the second quarter is currently on track to post the best results we’ve seen for the industry since the third quarter of 2016.”

Much of this can be credited to comps measured against a stretch of time that rivaled the Great Recession as far as restaurants are concerned.

“Additionally, restaurant sales were relatively soft last year, and the easier comps should help results” Fernandez says. “However, at this point, we believe the most likely scenario for the current quarter will be an improvement over recent quarters, while still suffering negative sales given the current consumer spending trends.”

Joe Naroff, president of Naroff Economic Advisors and TDn2K economist, says the economy is tracking for 2.2 percent expansion, or the same pace it has averaged for the past seven years. This could help explain why unemployment rates continue to go down. Meanwhile firms face pressure to expand and hire, and wage gains accelerate slowly. In turn, household spending is limited.

“Recently, there has been an upturn in retail spending on most goods and services. That stands in stark contrast to the continued decline in sales growth at restaurants. Consumers appear to be maintaining their spending at restaurants but increasing it for other goods and services. This change in consumer spending patterns was identified about a year ago and how much longer it will continue is unclear,” the report says.

That sounds like welcome news for malls and other flailing retail outlets, but not so much for restaurants.

In an added fact the casual dining lexicon could attest to, to-go sales are on the rise, up 2.9 percent year-to-date. Dine-in sales have been negative so far. Breakfast and mid-afternoon sales continue to present growth opportunities for operators, while lunch and dinner sag, the report says.

A Level Playing Field?

From an industry segment standpoint, May was pretty much a cloud across the field. Only fine dining reported positive same-store sales growth—albeit small—while quick service (1.21 percent decline) was next in line. The key recipe, TDn2K says, is having either a high or low average guest check. The middle ground is fractured. “Dining experience on one end and value and convenience on the other seem to continue to be key components of restaurant sales performance based on current consumer spending trends,” Fernandez says.

Casual dining surprised TDn2K by reporting a weak month in May (1 percent decline). This came after four months of improved performance to start 2017, a shift from recent years when the segment cemented itself at the bottom of the pack. “Casual dining has added a modest number of new units, but same-store sales declines have contributed to its overall loss in market share,” the report says.

Fast casual gained the most market share in the first quarter compared with the same quarter a year ago, despite weak sales (1.18 percent drop) due to increased competition and market build-out. Quick service was the only other segment to gain market share year-over-year.

It’s a People Problem

Ask any chef what their two biggest issues are and you’re likely to hear this: staffing and food cost, in no particular order. On the first note, there isn’t good news to share. TDn2K’s People Report Workforce Index showed that restaurant operators are pessimistic regarding the difficulty of recruiting in the upcoming quarter.

“Part of the problem is that hiring for new restaurant positions has started to pick up again. The number of employees in the chain restaurant sector increased by 1.9 percent during April compared with a year ago, up from 1.5 percent growth recorded in March. The other issue affecting staffing is rising turnover,” the report says.

Turnover rates increased yet again during April. “The turnover numbers that we are reporting are stunning,” says Joni Thomas Doolin, TDn2K CEO and founder of People Report, in a statement. “Many of the brands that we track are already facing unsustainable levels of staffing vacancies. Most alarming is the fact that over 70 percent of employees are leaving voluntarily as opportunities for better work increase.”

And there’s also the problem of the labor market nearing full employment. Turnover affects the bottom line and a restaurant’s ability to deliver a core tenet of good service: consistency. According to a study by People Report, it costs an average of around $2,200 to replace an hourly employee, while the cost of turnover for a manager is $15,000 on average.

“The companies [that] are leading in the marketplace are starting by winning in the workplace. Being a great employer has never been more important,” Doolin says.