November in review
This past month was an interesting one for restaurants, Top-line numbers showed robust sales growth at 1.6 percent—the third straight period of positive gains and the strongest month since January. However, the figure was largely due to a favorable shift in the Thanksgiving holiday.
Since the occasion was celebrated late in November, TDn2K’s reporting convention considered it occurring in December. Thanksgiving typically represents lower sales volumes for most industry segments.
While restaurant sales were lower for November of 2018, this year’s result did not include the same holiday headwinds. This effect will be reversed in December. Hence, the expected soft results.
The best way to illustrate the dynamic is to look at the first three weeks of November, said Victor Fernandez, VP of insights and knowledge at TDn2K. “Two of the first three weeks of the month had negative same-store sales,” he said in a statement. “Additionally, the month-to-date growth rate by the end of the third week was [negative] 0.3 percent. But comparing a regular week to Thanksgiving week last year meant the fourth week of the month had positive same-store sales growth in the double digits, which was enough to elevate the month’s overall growth rate by almost 2 percentage points.”
Even with the favorable comparison credited to Thanksgiving rolling into December and the fact same-store traffic hit double-digit growth during the last week of the month as a result, the industry lost guests again. Same-store traffic growth in November was negative 0.9 percent, year-over-year. While the best overall result since January, it’s worth noting traffic fell 3.1 percent for the first three weeks of the month. That might provide a clearer view of November’s true performance versus its actual one.
Naturally, the best-performing segments in November were those whose sales were most negatively affected by Thanksgiving: fast casual, upscale casual, and casual dining. These brands often close, or simply don’t welcome the same kind of business. Some get a boon out of it, like Cracker Barrel.
Fine dining and family dining enjoyed the shift. “For these segments, the delay in the holiday meant underwhelming same-store sales performance during November and especially during the last week of the month,” TDn2K said. “The expectation is for both of these segments to offset these results with strong same-store sales growth in December.”
Speaking to the earlier consumer spending point, soft income growth and increased holiday shopping are stirring flat restaurant demand.
“With trade pressures easing, economic growth has begun to stabilize at the expected modest to moderate 2 percent pace,'' Joel Naroff, president of Naroff Economic Advisors and TDn2K economist, said in a statement. “So far, fourth quarter data has been disappointing and while online Black Friday sales were strong, brick and mortar activity fell sharply. That points to decent, but not great, overall holiday shopping. Unfortunately, with consumers making more purchases from home, a trend that shows no signs of lessening, eating out is likely to be limited.”
“The more moderate pace of consumption implies the softening in hiring and income growth should continue,” he added. “That is likely to be the case even if a so-called ‘phase one’ China trade agreement is signed sometime over the next few months. It eases tensions but doesn’t significantly change the economic fundamentals. And it isn’t certain an agreement will happen. Consequently, expect household spending to expand moderately at best over the next six months, assuming a modest trade agreement. That means restaurant demand is likely to be largely flat.”
By region, Texas was the only market of the 11 TDn2K measures that experienced negative sales in November. The Mountain Plains was the strongest at 3.6 percent and traffic of 0.61 percent. Texas saw those numbers decline 0.15 percent and 2.71 percent, respectively. Seventy-one percent of local markets were positive. Twenty-nine percent experience negative market sales. In October, only 53 percent of local markets had positive sales.