Restaurant Sales Down Again in April, but One Expert Sees Reason For “Cautious Optimism”
Pizza chains saw an overall drop in same-store sales of nearly 2% in the first quarter, but Domino’s surged, thanks to investments in technology.
After rapid growth, fast-casual pizza chain Pie Five Pizza has been closing stores and reported a 15.8% decline in same-store sales in the first quarter of 2017.
Same-store sales for restaurants declined again in April, marking the third straight month of decline, but there may be reason for “cautious optimism,” one industry expert says.
According to data from TDn2K, the parent company of Black Box Intelligence, same-store sales fell by 1% last month, which was actually a slight improvement over the 1.1% drop in March, according to a report published on TDn2K’s website. Traffic was down by 3.3%, which is also a slight improvement of .1 percent over March. And annual sales were down by 1.5% through April, as compared to a 2.3% decline in the fourth quarter of 2016.
“If sales remain at April levels for the balance of the second quarter, it would be the best quarterly performance in over a year,” TDn2K stated in the report.
Fine dining, upscale casual and family dining were the strongest performers in April and the only ones to log sales increases. Fast-casual and quick-service were the weakest segments, with the latter experiencing a downturn in 2017. Fast-casual remains the fastest-growing segment, although cannibalization may be eating into the segment’s overall sales. Average same-store traffic growth for casual dining remains down, with a decrease of 2.9%, but that’s still better than the 4.1% decline in the last six months of 2016.
As Nation’s Restaurant News’ Jonathan Maze writes in his On the Margin blog, fast-casual pizza chain Pie Five Pizza saw a 15.8% decline in same-store sales in the first quarter of 2017, while Domino’s experienced a 10.2% surge. “[Domino’s] is a massive advertisement for infusing restaurant chains with technology, and just about everybody is following suit,” Maze wrote. “Domino’s same-store sales increased 16.6% on a two-year basis, but that growth is more than 30% over three years. The company’s technology advantage is given much of the credit.”
Meanwhile, overall same-store sales for pizza chains fell by 1.9% in the first quarter, Maze notes, and the decline would have been even worse—4.3%—if you factored out Domino’s performance.
Despite the troubling numbers for the industry as a whole, Victor Fernandez, executive director of insights and knowledge for TDn2K, said there were reasons to be “cautiously optimistic” about the second quarter of 2017. “The move of the Easter holiday meant that April’s results were likely softer than they would have been without this shift, meaning spending in restaurants was probably a little stronger than the numbers show. Furthermore, sales started softening considerably starting with June of last year. This translates into easier comparisons when calculating this year’s sales growth rates.”
“Unemployment remains very low, and there are indications of wage growth given the tight labor market,” Fernandez added. “Consumer confidence dropped in April but still remains strong compared with recent years. However, as many have pointed out, the generally strong economy has not yet translated to sustained growth for the industry.”
Joel Naroff, president of Naroff Economic Advisors and a TDn2K economist, said rising household debt will probably keep many consumers from eating out in the next quarter. Promised tax cuts, meanwhile, will be slow in coming if they come at all, “and given the political uncertainty, it is not clear how extensive they will be,” he said. “The hope that consumer and business spending will surge is probably just that—hope. That said, the economy should rebound this quarter, but it looks like we’re in for another year of 2.25% growth. While that pace is not likely to make anyone happy, it is enough for the labor market to tighten further and the Fed to continue raising rates, possibly as soon as June.”