Their Restaurant Industry Snapshot for the month of August 2018 shows that last month had the highest growth rate recorded in the past three years. According to TDn2K, this growth is part of the restaurant industry’s continuing recovery.
Black Box Intelligence based the August snapshot on the weekly sales of more than 30,000 store locations. These stores comprised over 170 brands and annual sales of close to $70 billion. According to the data, same-store sales for the month of August were up 1.8 percent. This marks last month as the best in the industry since September 2015.
Rocked by a Hurricane
Interestingly, Hurricane Harvey played a role in last month’s growth. The Category 4 hurricane made landfall along the Middle Texas Coast on August 25, 2017, eventually leaving the state of Texas between August 29 and 30. When making a soft comparison and factoring in Hurricane Harvey, same-store growth for the final week of August 2018 reached 2.9 percent.
Hurricanes affect the restaurant industry in various ways. The commonly expected impact is decreased traffic and sales due to evacuations and severe damage caused to infrastructure and businesses. But traffic and sales can increase when restaurants are able to operate, consumers are unable to prepare food at home, and volunteers from outside affected areas arrive to help.
The vice president of insights and knowledge at TDn2K, Victor Fernandez, pointed out that last month still would’ve been the strongest in three years even without the impact of Hurricane Harvey. The first three weeks of August were pre-hurricane and grew by 1.5 percent. Had sales not grown by an additional 0.3 percent the final week, last month would still be have seen the most growth since September of 2015.
Sales Up, Guest Counts Down
Some analysts saw signs in July of this year that restaurant sales may. Fortunately, August saw almost a full percentage point of same-store sales growth over July’s results.
Same-store traffic, however, was down 0.8 percent last month. So, while sales are up, guest counts continue their downward trend. August did at least see a glimmer of positivity regarding traffic, posting 0.5 percent over guest counts in July.
An economist for TDn2K, Joel Naroff (who is also the president of Naroff Economic Advisors), has predicted that consumer spending “is likely to moderate over the next six months.”
Naroff’s prediction is due to several factors. He doesn’t see much in the way of signals that the United States economy’s growth will slow significantly sometime soon but does say that wage increases are modest.
Companies that are seeing an increase in profits are boosting employee benefits in the areas of retirement, health care and perks that are less than traditional. But moderate wage increases don’t translate to increased confidence in our economy or more spending in businesses that rely on consumer traffic.
Guest counts may have dipped in July but so did restaurant manager and hourly employee turnover. TDn2K sees a connection between top performers in traffic and sales and their ability to retain managers and employees. TDn2K’s research found the following costs for employee turnover in 2017:
- Front of house: $2,000 per hourly employee
- Back of house: $1,902 per hourly employee
- Manager: $14,036
TDn2K also found that turnover rates last year increased 5 percent compared to 2014. Employee retention is of the utmost importance.
A correlation between staff retention and guest satisfaction exists in the restaurant space. Therefore, the operators who can add and retain staff have cause to be positive about traffic and sales moving forward.
Read this: Stop the Turnover Bleeding
That optimism must be cautious, however. The average unemployment rate nationwide over the past four months reached 3.9 percent. Twenty states saw a rate of unemployment of 3.6 percent (or lower) two months ago. For operators who have found hiring top talent or just keeping their businesses fully staffed challenging, the unemployment rate is one explanation.
Hurricane Irma affected restaurant traffic and sales at the end of September 2017. TDn2K expects the Irma effect to impact the comp sales for restaurants located in the Southeastern United States. However, the firm still predicts strong same-store sales from that region. The Irma effect should result in an increase in same-store sales nationwide.
Read this: Industry Inching Closer to 12 Million Jobs
TDn2K finds that, as the third quarter of 2018 closes, operators can be cautiously optimistic about the industry’s growth. Their current Restaurant Industry Snapshot indicates that management and employee retention are keys to increasing or at least maintaining guest traffic and sales.
The correlation between hurricanes and restaurant sales and traffic will be tested next year. Hurricane Florence, unfortunately, has become a Category 4 storm. Florence is bearing down on the Carolinas and could wreak catastrophic havoc on the Eastern United States this month. South Carolina's governor has issued an evacuation order for the entirety of the state's coastline, beginning Tuesday at noon.