The surface-level stats are promising. January’s same-store sales of 2 percent—the same as December—marked the best two months for restaurants in more than two years, according to TDn2K’s latest Restaurant Industry Snapshot. It’s also the eighth consecutive month of positive growth. Even traffic, which has tracked negative year-over-year since the recession, showed relative improvement, falling just 0.7 percent to start 2019. Yet as these positive comps stabilize and hold, challenges persist across the industry.
The first, and arguably biggest, issue at hand is staffing. For years, an ongoing concern for restaurants has been finding enough qualified employees and retaining them once they’re onboarded. The cost of losing trained workers is heavy—as much as $2,000 for hourly front-of-the house employees and a whopping $14,036 for managers—and that’s not factoring in how it hurts a restaurant’s ability to deliver stellar customer service.
TDn2K’s data showed that restaurant job growth, year-over-year, was 2.4 percent in December, a slight uptick from November’s 2.2 percent growth. So restaurants are increasing their number of employees at a rapid place. Meanwhile, restaurants are still struggling to keep units fully staffed, TDn2K said. “Of particular concern is the declining management retention. Management turnover has reached historically high levels, which undoubtedly lead to higher hourly turnover, poor employee engagement within the restaurants and unfulfilled service standards for many restaurant brands,” the report said.
According to TDn2K’s Q4 People Report Workforce Index, 59 percent of participating restaurant brands reported that recruiting managers during the quarter was more difficult than during the previous one. Sixty-eight percent reported increased recruiting difficulty for hourly employees.
The People Report also showed that turnover for hourly and manager turnover increased again in December. They remain at historically high levels, which translates to large portions of the restaurant industry’s employee base being short tenured, not fully trained, and unengaged in their jobs, TDn2K said. “For chain restaurants trying to win the share of stomach battle, this situation is not ideal. Poor retention makes it more challenging for operators to provide guests a superior experience that keeps them coming back,” it added.
This circular conundrum has persisted for years. Operators, experts, consultants, and everybody in between preach service as the key to restaurant experience, and the way leading brands can win in a crowded marketplace. But the staffing crisis is making it close to impossible for brands, other than those at the highest level of performance, to deliver on the service levels they aim to provide. TDn2K said there are “many factors” contributing to increased staffing headaches. One being that the industry continues to expand and place pressure on people responsible for keeping restaurants staffed.
Let’s take traffic for example and what that says about the state of the industry. The average same-store traffic growth over the last two months was negative 0.8 percent. By comparison, the average for the previous six months was negative 1.5 percent. While it’s improving, this is all relative to compounded years of sluggish results. A recent study by TDn2K analyzed the Black Box Intelligence traffic for existing chain locations from 2013–2018. It revealed that the average restaurant location lost almost one of every 10 restaurant visits in the last five years.
It changes dramatically when you factor in the traffic of newly opened restaurants, however. Total traffic growth for chains was actually positive in the last five years. In other terms, customers are not moving away from chain restaurants. It’s the opposite. The issue is that the net growth in new restaurants opened during the period outpaced population growth. Or, put simply, there are too many restaurants.
“Restaurant visits are diluted over a larger base, which translates into same-store traffic falling on average,” TDn2K said. “Additional studies by TDn2K revealed that despite the industry’s same-store traffic woes, best in class performing restaurant brands are driving positive traffic consistently.”
Back to the sales
This is often a difficult time of the year to gauge, with weather problems and holidays littering the calendar. “Winter months are tricky to report on due to the noise in the data coming from weather and the potential effect of holiday shifts,” Victor Fernandez, vice president of insights and knowledge for TDn2K, said in a statement. “However, it is hard not to remain optimistic about the relative strength of restaurant performance, especially when looking at sales growth over a longer time period. January’s same-store sales growth compared with January 2017 was 1.3 percent. Industry two-year sales growth has now been positive for the past four months, after more than two years of declining growth.”
You can see the weather affect play out by designated market areas. The stronger region in January was the Southeast, reporting sales of 7.21 percent and traffic of 4.35 percent. The weakest was the Midwest, with sales and traffic of negative 0.48 and 2.66 percent, respectively. The four regions that had flat or declining sales were among the most impacted by severe winter storms, TDn2K said.
Of the 195 DMAs tracked by Black Box Intelligence, 73 percent achieved positive sales growth during the month. That mirrors the results over the last seven months. But even though national sales growth was the same in December, January witnessed a decline in markets with positive sales growth. That number was 84 percent during the previous month (blame weather). New England, New York-New Jersey, the Midwest, and Mid-Atlantic all reported same-store sales growth worse than negative 5 percent during the third week of the month.
TDn2K added that consumer spending is expected to continue expanding at a moderate pace.
“In the span of just two months, we went from stock market meltdowns to government shutdowns,” said Joel Naroff, president of Naroff Economic Advisors and TDn2K economist, in a statement. “Yet despite all the chaos, the economy keeps moving forward. Job growth remains solid and while consumer confidence was hit hard by the Washington political games, the decline is not expected to slow household spending significantly. Ultimately, people determine their consumption levels based on their incomes. Given that the rise in wages should accelerate as the labor markets tighten further, spending on discretionary items, including restaurants, should hold up quite well.”
“The only major issue overhanging the economy is the potential for a full-fledged trade war,” Naroff added. “More than likely an agreement that is more puff than pastry will be the outcome. Once that hurdle is cleared, the economy and consumer spending should expand at a moderate pace the remainder of the year.