Insolvency Technology

Is The US Restaurant Recession Becoming Structural?

This article was sourced from Zero hedge. Article by Wolf Ritcher.

“Flat sales” are now a “welcome change.” The New Normal.

National restaurant data and anecdotal evidence has been piling up. “T Vogel,” a commenter on WOLF STREET, put it this way:

My wife and I make almost 30k more than the median family income in my town (northern CA) with no kids. Our rent just went up by 1k a month – landlord selling – starter houses are selling at 500k.


We are not spending a dime more than needed. I plan to skip our weekly night eating out now.

They’re not the only ones to skip restaurants. Costs are going up, not just of restaurant meals, but of life in general. Incomes are lagging behind. And consumers are adjusting…. That’s what a Reuters/Ipsos opinion poll of more than 4,200 U.S. adults confirmed today.

One-third of the respondents said they were eating in restaurants less often than three months ago. The poll was conducted in the second half of January. Of them, 62% cited cost as the primary reason.

Restaurant prices have been rising. The price index for “food away from home,” a subcategory in the Consumer Price Index, increased between 2% and 3% every year since 2012. In January, it rose 2.4% year-over-year. Those price increases are cumulative, and they add up after a while.

It’s not just that eating out is getting more expensive; it’s that stretched households are pushed by price increases elsewhere to divert some of their limited means from eating out to other expenditures.

Yet grocery stores aren’t reporting blockbuster numbers either, Bob Goldin, partner at food industry strategy firm Pentallect, told Reuters. “There’s more splintering of the food dollar, and the pie isn’t growing,” he said. “Where you spend has changed more than the amount you spend.”

The national averages, as seen from the restaurant’s point of view, bear that out.

In its most recent Restaurant Performance Index, the National Restaurant Association lamented “soft same-store sales and customer traffic readings” in December, which kept the Current Situation Index (tracking same-store sales, traffic, labor and capital expenditures) in contraction mode for the third month in a row:

  • 42% of operators said their same-store sales declined year-over-year.
  • 47% of operators said their customer traffic declined year-over-year.

This sort of data has been coming out for a while. It got to the point where TDn2K titled its most recent Restaurant Industry Snapshot: “Flat Sales, Welcome Change for Restaurant Industry in January.”

And more specifically:

While same-store sales growth was flat (zero percent) in January, it represented a welcome break from the ten consecutive months of negative sales growth experienced by the industry through the end of last year.

These flat sales were a function of slightly higher per-person average spending and fewer people going to restaurants: same store traffic was down 2.5% monthly and 4.1% on a rolling three-month basis. As the report put it: “Although still negative, this was the best month for the industry since last May.”

On a two-year basis, same-store sales were down 0.8% from January of 2015.

There were some winners in January, with growing same-store sales: Upscale casual, family dining, and quick service. Casual dining “was able to achieve flat results in January,” hallelujah, thus breaking a streak of 13 months in a row of falling same-store sales.

And there were some losers with same-store sales declines, according to the TDn2K report: fine dining and fast casual.

You get the idea: It’s been so tough out there for restaurants that any sort of flat spot or even a smaller down-tick in the averages is welcome news for the industry. And it looks like it’s becoming a structural feature of the US economy, though not nearly as bad as the downward spiral of brick-and-mortar retail.

This of course contradicts the theory or hopes that millennials – who are said to prefer splurging money on “experiences,” such as eating out, rather than on products, such as clothes – would pull the restaurant business out of its funk.

That said, you wouldn’t necessary know this by walking around San Francisco. Yelp lists nearly 8,000 eating establishments in the City, many of them recent creations, including 500 cafés and 3,000 delis. A lot of the places are packed. Some can be impossible to get into on a Friday or Saturday night without a reservation days or weeks in advance. Others are nearly impossible to get into no matter when or what.

But then other restaurants are nearly empty. There has been a slew of recent restaurant closures, amid talk of a big shakeout, including something called the “Mid-Market Massacre” in an area around Market St., where restaurant after restaurant closes, done in by exorbitant rents, not enough traffic, too much competition, a finicky public that might have lost interest, and insufficient sales. So yes, it’s tough out there, even in San Francisco, in what must be one of the toughest businesses on earth.

For specialist advice regarding your specific circumstances, please contact the BCR team.

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