The restaurant industry had plenty to celebrate during the holiday season. December's same-store sales growth of +2.0
percent was the highest since August of 2015. December became the seventh consecutive month of positive growth, which
highlights the industry's strength throughout the year. By comparison, the industry was only able to post positive sales
growth during two months in all of 2017. These insights come from TDn2K's Black Box Intelligence™ data, based on weekly
sales from over 31,000 locations representing 170+ brands and nearly $72 billion in annual sales.
"Perhaps the most encouraging news for the industry came in the form of the unusually strong fourth quarter results,"
said Victor Fernandez, vice president of insights and knowledge for TDn2K. "Same-store sales growth during the fourth
quarter was +1.4 percent, which was the highest in over three years. Moreover, the industry was able to post these
results on top of the only quarter with positive sales growth last year. The industry's recovery from a longer-term
perspective also continued to show some upward momentum. Same-store sales during the fourth quarter increased by
slightly over 1.4 percent compared with the same period in 2016. Two-year sales growth had been negative for the past
eight consecutive quarters.
Annual same-store sales growth for 2018 was +0.7 percent. Though only moderate growth, this is also the best performance
by the industry since 2015.
Guest Counts Continue to Erode, But Small Improvement Cause for Some Optimism
According to government numbers, as a country, Americans have spent more on food away from home than on food at home
over the last few years. But an acceleration in restaurant prices compared with groceries and a growing field of
competing dining options continue to translate into what seems to be the new normal in chain restaurant performance.
Even when sales are up, the industry continues to suffer from declining same-store guest counts.
Same-store traffic growth during December was -0.9 percent, while traffic growth for the fourth quarter was -1.6
percent. The latter represented a +0.4 percentage point decline from the previous quarter's growth rate.
"Although the importance of persistently declining guest counts cannot be overlooked, there are some small signs of
recovery in the latest results," commented Fernandez. "Two-year same-store traffic growth was -3.6 percent during the
fourth quarter of 2018. The average two-year growth for the first three quarters of the year was -5.8 percent.
Price Increases and Reduced Discounting Fuels Sales Momentum
How was the industry able to post its best sales results in years during the fourth quarter, yet traffic growth worsened
compared with the previous quarter? The answer is the rate at which restaurant guests are spending per visit accelerated
during the quarter. Average guest checks grew by 3.1 percent year over year in the fourth quarter. During the previous
three years, average guest check growth never topped 2.5 percent.
"While many brands utilized heavy discounting and price promotions in 2017, average guest checks only grew by 1.9
percent during the year for the industry. Restaurants seem to have eased off this tactic in 2018," continued Fernandez.
"Guest check growth for this year was a significantly higher 2.6 percent pointing to price increases and/or an upward
shift in product mix."
Fast Casual and Casual Dining Improve Most, Upscale Dining Still Dominates
Based on same-store sales growth, the best performing industry segments during 2018 were fast casual and casual dining.
But the real story behind these segments' performance is one of improvement after a previous year of abysmal results.
These segments were the worst performers based on same-store sales growth during 2017. The fact that they had soft
comparisons the previous year definitely helped boost their results in 2018.
From a consistency point of view, the real winners are the segments with the highest average checks: upscale casual and
fine dining. Not only did both of these segments have strong positive growth in 2018, but they are also the only
industry segments that were able to sustain positive sales growth averaged over the last three years.
The upscale casual and fine dining segments also have the best average traffic growth results since 2015, but even they
cannot escape the trend of declining guest counts that plagues the rest of the industry.
Labor Market Helps Boost Wage Gains and Consumer Spending
"The chaos in the equity markets was not representative of the condition of the economy," explained Joel Naroff,
president of Naroff Economic Advisors and TDn2K economist. "Nothing made that clearer than the huge December increase in
employment. Businesses are still hiring and that is causing wages to rise faster. As a result, consumer spending is
holding up and should continue to do so, which is good news for the restaurant industry."
"However, most indicators point to a moderation in growth going forward, but only from strong to a more sustainable, yet
decent, pace. A recession does not appear to be likely anytime soon and if a major slowdown occurs, it probably would
not come before late in the year. Though the moderate growth should support continued improvement in restaurant sales,
it will also lead to lower unemployment rates and even greater pressure on wages."
Staffing Difficulties Rolling into 2019
The extremely tight labor market, which undoubtedly helps on the sales side of the equation for restaurants, continues
to disrupt the operations side through its effect on staffing levels. On one hand, in this environment operators are
increasingly having difficulty finding enough employees to fully staff their restaurants. According to TDn2K's latest
People Report Workforce Index, 74 percent of companies reported increased difficulty finding qualified hourly employees.
Perhaps most concerning, 59 percent said they are having a tougher time hiring people to manage those restaurants.
One reason the vast majority of restaurants reported they are constantly understaffed, especially in the back of the
house positions, is that restaurant turnover continues to increase. Based on People Report research, during the first
eleven months of 2018, median turnover increased for hourly employees and restaurant managers in both limited service
brands (quick service and fast casual) and full service brands (casual dining, family dining, upscale casual and fine
dining). All levels of restaurant employees have been experiencing historically high turnover rates. Given that turnover
is rising proportionally more for restaurant managers than for hourly employees in both service styles (limited and full
service), the expectation is for staffing headaches to carry into 2019. Management turnover, TDn2K research has
revealed, is a leading indicator of hourly retention as well as restaurant sales and traffic performance. It is those
brands that are successful at retaining and developing engaged managers who will be better positioned to win the market
share battle in the new year.
TDn2K™ (Transforming Data into Knowledge) is the parent company of People Report™, Black Box Intelligence™ and White Box
Social Intelligence™. People Report provides service-sector human capital and workforce analytics for its members
monthly. Black Box Intelligence provides weekly financial and market level data for the restaurant industry. White Box
Social Intelligence delivers consumer insights and reveals online brand health. TDn2K membership represents 43,000
restaurant units, nearly 2.6 million employees and $72 billion in sales. They are also the producers of leading
restaurant industry events including the Global Best Practices Conference held annually each January in Dallas, Texas.