Restaurant Operators Must Prepare For Difficult July

Editor's note: This exclusive series to Nation's Restaurant News provides C-level insights into the sales and traffic data from clients subscribing to Black Box Intelligence, a financial performance benchmarking company. The views expressed here do not necessarily reflect those of Nation's Restaurant News.

After an unstable performance so far this year from the restaurant industry, operators and investors have been asking, "Is it the economy or is it me?"

I'll give you Black Box Intelligence's read on this perplexing situation — starting with the numbers, as we always do, including both the Restaurant Industry Snapshot for June and the second quarter.

Industry same-store sales rose 1.5 percent and traffic fell 0.6 percent in the month of June. For the second quarter, same-store sales rose 0.7 percent and traffic fell 1.6 percent.

The volatility of the quarter was pretty wild, as we reported a 1.3-percent increase in same-store sales in April, a 0.4-percent decrease in May and a 1.5-percent increase in June.

Our partners at Consumer Edge Research reported the same kind of volatility in their Restaurant Willingness to Spend Index. In April, the index registered at 83, increased in May to 88 and then dropped back down again in June to 81.

[The Restaurant Willingness to Spend Index is set at a base line of 100.]

I should note that the Restaurant Willingness to Spend Index has been predictive of what the following month's sales direction would be 23 out of 26 months. Unfortunately, this suggests a difficult July is coming. I wish I could say it isn't so.

The data also suggests that consumers are positive about the decline of gas prices but are looking for value by controlling their spending. Survey results indicate that such actions as leaving a smaller tip and using a loyalty card that offers discounts became more common from the beginning of the quarter to the end of it.

As I mentioned last month, there is a softening in each of our segments and in publicly reported quick-service restaurant companies.

In the People Report data we see increasing pressure on hiring and a concern about the impact of new health care laws. This will provide even more volatility for operators as we anticipate and make adjustments to react to the reality of this legislation.

On a more long-term view of same-store sales, we are tracking 2009 sales declines offset by the gains in 2010, 2011 and 2012.

Given the marginally positive same-store sales growth in the third quarter of 2011, it should be relatively easy to maintain positive same-store sales through the third quarter of 2012, although there is still significant ground to recover from the lows of the third quarter of 2009. Another obstacle for the third quarter of 2012 will be the Summer Olympics taking away dine-in sales, which creates a great opportunity for restaurants to bolster to-go transactions and offset a potential drop in overall sales.

Additionally, we saw the check/transaction average move down, suggesting operators have slowed their price increases or are implementing more aggressive discounting. We remain concerned with traffic, which, as mentioned, dropped 1.6 percent for the quarter.

So who wins and who loses will be dependent upon operators' abilities to incorporate sustainable value into their offerings, manage expenses — especially human capital costs — and communicate clearly and effectively what the brand stands for in the eye of the employee and the marketplace.

What can you do?

Turn off the news, stop listening and reading economic reports, and go out to eat!

"The Restaurant Industry Snapshot" is a compilation of real sales and traffic results from 117 DMAs from 73 distinct restaurant brands and approximately 12,000 restaurants that are clients of Black Box Intelligence. Currently, data is comprised of casual dining (44%), upscale/fine-dining (32%) and fast-casual/family-dining (24%). Black Box Intelligence is a sister company to People Report, which tracks 1 million restaurant employees on workforce analytics. The Restaurant Industry Snapshot also includes the "Restaurant Industry Willingness to Spend Index" from Consumer Edge Research, which is a monthly household survey of more than 2,500 consumers. Consumer Edge Research is a marketing partner with Black Box Intelligence and People Report.

Wallace B. Doolin
Doolin is chairman of Thomas Doolin and Associates LLC, the holding company of People Report, the leader in human capital business intelligence for the restaurant industry and Black Box Intelligence. He is the founder of Black Box Intelligence, a state of the art business intelligence product for the restaurant industry. Additionally, Doolin serves as executive chairman of ESP Systems LLC, a hospitality and healthcare technology company. Other current responsibilities include public company board of director service for Caribou Coffee and Famous Dave's. Previously, Doolin served as CEO of Carlson Restaurants Worldwide and TGI Friday's.