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Why slow restaurant sales are here to stay

Too many units and competitors, and a changing consumer, mean slow growth will be here for a while, says RB’s The Bottom Line.
Restaurant Business

Is the restaurant industry headed for a persistent slowdown? RB Executive Editor Jonathan Maze and Editor-at-Large Peter Romeo offer opposing points of view. For the alternate take, see Reality Check.

The Bottom Line

My colleague Peter Romeo’s optimism on the restaurant industry is refreshing. Focus on the customer and the food and all will be well.

If only that were true.

It’s time for a dose of realism: This is a slow-growth environment. It’s going to be a slow-growth environment for some time. The industry has to adjust to this and shift its strategies to compensate for a future in which traffic is hard to come by—and it isn’t just focusing on the customer.

Here’s a few things to consider:

The economy is booming and sales are still weak.

In 2017, sales among the 500 largest restaurant chains grew just 3%. Given that, unit count grew by 1.2%. Factor in menu price increases and that probably suggests a total traffic decline among the largest chains.

This occurred despite an unemployment rate that declined from 4.8% to 3.9%, and despite low inflation and improving wages.

This year was supposed to be better because comparisons are easier, and because the federal government just infused consumers with tax breaks. The result? Traffic, according to Black Box Intelligence, continues to decline.

If full employment and no inflation can’t get people into restaurants, what will?

There are a lot of restaurants.

The number of restaurants per capita has skyrocketed in recent years. According to Hudson Riehle, senior vice president of the research and knowledge group with the National Restaurant Association, the number of restaurants per 100,000 people has grown from 165.1 in 2001 to 189.8 in 2016.

Oversupply is more acute in some sectors (casual dining) than in others (fine dining and QSR). But the simple fact is, aggressive building fueled by heavy investment and generous lenders has created an industry that has outpaced consumers’ willingness to dine out.

Demographics are working against restaurants.

Baby Boomers are retiring quickly. When people retire, they traditionally eat out less because they have more time on their hands and are frequently on fixed incomes.

While millennials represent a large generation that apparently likes to eat out, the loss of so many regular visits represent a long-term industry challenge and will keep traffic muted for some time.

A recession is coming.

It may not be this year. It may not be next year. But the country is in the midst of one of the longest economic expansions in history.

Recessions are inevitable. But it’s likely that one comes sooner rather than later, simply because we’re due for one.

The economy is working against it.

There are more employees working at home. The “gig economy” means more people are controlling their own hours and schedules and might be more willing to cut back on dining out. A growing number of prime, working-age men have disappeared from the economy.

These issues provide long-term concerns for an industry that requires people with more money and less time.

People like staying home.

We’ve spent a lot of money and effort on our homes over the years. We have large televisions and fancy sofas. We can use our phones while watching a movie and have a whiny kid without fear of an evil look from the next table.

While delivery can help with some of that, it’s difficult for restaurants to compete on a cost level with food prepared at home—and so far, there is little indication that the growing delivery trend is generating improved sales for the nation’s restaurants.

The simple fact is, for all of these reasons and more, the industry faces a long-term traffic challenge. While plenty of chains will be able to get customers in the door, they’ll do so by taking share from someone else.

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