Sparta Report

US Restaurant Industry is Still Imploding

While the economy is growing again, this doesn’t seem to be translating into the return of the US consumer. The restaurant industry is still getting its butt kicked:

“July proved to be a tough month for chain restaurants,” said Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K.

“Based on recent trends, we were cautiously optimistic that the tide was turning a bit, especially since brands were comparing against weaker comps in 2016.” But not so much any more.

According to Black Box, calculated on a two-year basis, sales in July 2017 were down -4.2% compared with July of 2015, in other words there has been no growth in over two years. The data is even worse for same-store traffic, which was down -8.7% for that same period. These are the weakest two-year growth rates in over three years, additional evidence that the industry has not reversed the downward trend that began in early 2015.

In light of the surprisingly poor monthly results, the consultant appear to have not only given up on any recovery in the restaurant sector, but are now extrapolating the weakness to the broader economy.

“While the economy keeps growing at a moderate pace and job gains remain strong, the consumer seems to be on vacation – literally and figuratively,” said Joel Naroff, President of Naroff Economic Advisors and TDn2K economist whose Industry Snapshot tracks sales at 27,000 restaurant units from 155 brands, generating $67 billion in annual revenue. That’s about 10% of total “eating and drinking places” revenues as tracked by the Commerce Department

One of the clearest indicators that households are spending cautiously is the softening of big-ticket purchases. In July, for the eleventh month out of the last twelve, vehicle sales were below the rate posted the year before. Home sales, while still trending up, are now expanding at a decelerating pace.”

My guess is that oil and energy are what’s driving the current economy. If those sectors roll over again, watch out.

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