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Report: In super-saturated restaurant marketplace, traffic lags

November 13, 2018

The restaurant industry racked up five straight months of positive same-store sales growth in October, but traffic growth was negative again, data company, Tdn2K, reported. Chief problems cited for the flagging traffic included industry oversaturation and increasing competition from groceries and C-stores. 

Same-store sales growth on a two-year basis was 1.1 percent during October, according to TDn2k, based on weekly sales from over 30,000-plus locations for more than 170 brands. The month's 0.8 percent sales growth rate is a slowdown from the 1.2 percent in September and 1.8 percent in August.

"As the industry heads into the fourth quarter, the fear was that tougher sales comparisons from Q4 of last year would throw restaurant sales back into negative growth territory," TDn2K Vice President of Insights and Knowledge Victor Fernandez, said in the release. 

"For reference, two out of the three months had positive sales growth during the fourth quarter of 2017. No other month of 2017 reported positive sales growth. But seeing restaurants grow their sales during October on top of positive sales growth during the comparable month a year ago suggests the industry's sales momentum is robust and can carry into the new year."

Same-store guest traffic was down 2.2 percent in October, a 0.8 percentage point drop from the growth rate recorded for September. Furthermore, it was the weakest month for traffic growth since May.

An increase in average guest check year over year continues to fuel positive sales growth for restaurants, with check growth at 3 percent during October — the highest level in the last three years. TDn2K also reported that many brands have raised prices over 2018, but they said overall strong consumer confidence plus raising wages may be prompting diners to spend more when they eat out. 

"The economy continues to expand strongly, but there are a few signs that the growth is moderating," TDn2K economist and  Naroff Economic Advisors President Joel Naroff, said in the release. "The housing market is trending downward as mortgage rates and prices continue to climb. The trade battles have initially enlarged rather than shrunk the trade deficit. Business investment has been disappointing, given the surge in profits. But consumer spending remains robust and most importantly, wage gains are accelerating. That has offset the rise in prices."

Naroff added that even though earnings aren't skyrocketing, they are growing just enough to sustain household demand and he felt the holidays would do well for restaurants. 

"There is one significant concern, though," he said. "The savings rate is falling and, unless wage gains accelerate, the deterioration in spending power could cause households to cut back. The current draw-down on savings is not sustainable. Expect demand to be good over the next six months, but by the spring, without better wage gains, consumers will probably become more restrained in their spending habits."