US consumers can't seem to work up a growing appetite for restaurants.
Restaurant same-store sales fell 2.8% in July, a “sharp” decline of 1.8 percentage points from June, according to data released Friday from TDn2K. Its Restaurant Industry Snapshot tracks weekly sales from more than 28,500 US restaurants totaling $68 billion plus in annual sales.
July's downward trend means that the sector hasn’t seen one month of positive same-store sales since February 2016. Meanwhile, comparable store traffic, or customer visits, declined 4.7% last month, worse than the 3% drop in June and continuing a streak of negative traffic pattern seen also since February 2016.
The downward trend really began to take hold in early 2015. July's same-store sales were 4.2% below those of July 2015. Comparable traffic plunged 8.7% over the same two-year period. TDn2K said it had originally expected the tide would “turn a bit” because the industry was already comparing against weak results in 2016.
There are some broad economic reasons that restaurants have struggled to turn around. Most importantly, slow wage growth has held back discretionary consumer spending. But the industry downturn also reflects shifting consumer habits. In particular, consumers have been showing a preference for convenience, which translates into rising sales for prepared foods at supermarkets and other stores.
Meanwhile, grocery stores are amping up their offerings of ready-to-cook meal kits, another option that could lead consumers away from restaurants. Kroger CFO Michael Schlotman, in a recent earning call, said the quality of the company's new meal kits is essentially “the same as going to a restaurant and getting the meal... but people like to prepare something at home and they find it easy.”
And that’s not even mentioning the mushrooming of online meal-kit providers like Blue Apron that are also eating into restaurant sales.
Restaurants face “competition from more prepared meals from grocery stores, meal kits (delivery companies) and even from convenience stores and food trucks,” said Victor Fernandez, executive director of insights and knowledge at TDn2K, in an interview.
On top of that, there’s an oversupply of chain restaurants, he said, adding that the number of restaurants per person keeps rising. “There are too many options out there,” he said. For instance, he said the fast casual segment (such as Chipotle) alone saw a 9% unit growth in 2016.
As a result of these various factors, restaurants are seeing declining lunch and dinner sales. Casual/family dining, fast-casual and quick service restaurants are among lagging performers, Fernandez said.