Restaurants Must Win Markets To Fight Consumer Flux

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.

Our predictions of a soft month were unfortunately correct. July started out strong but faltered later on.

The just-released Restaurant Industry Snapshot for July reports that industry same-store sales rose 8 percent and traffic fell 1 percent, compared with a same-store sales increase of 1.4 percent and a traffic decrease of .8 percent in June.

We based our predictions on the Restaurant Willingness to Spend Index from our partners Consumer Edge Research, which declined from an 88 in May to 81 in June. [The baseline is set at 100.] Expectations dropped for both the $100,000-plus consumer and the under $50,000 consumer, by 11 and 9 points respectively. That decline, coupled with the Olympics in the last three days of the month, fueled our concerns.

However, it was particularly encouraging to see such a strong start to the month. Our members reported positive same-store sales in food and in alcoholic beverages. When sales did soften, it occurred predictably in the dine-in area, as to-go sales and catering were both very strong.

Digging into regional results, it was intriguing to me to look at various data points that might explain the differences between sales the best and worst regions. The Midwest is being hammered with record hot weather — along with all parts of the country besides the Northwest — but is still on top with a sales increase of 1.8 percent. At the same time, sales in the West declined .7 percent.

However, none of that matters nearly as much as when you correlate the regional unemployment numbers to performance. When you dig into Bureau of Labor Statics as we do, you find that in the Midwest, very few designated market areas are experiencing unemployment above the 8.4 percent national average.

Conversely, when you look at the West region, very few DMA's are below that level. In fact, Los Angeles and other southern California markets are still at 10.3 percent and higher — almost 2 percent higher than the rest of the country.

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So what does this mean for performance of our industry?

We believe that the consumer is essentially in a constant state of flux, as indicated by the spike in the just-published July Consumer Edge Research Restaurant Willingness to Spend Index, which jumped six points to 87.

We continue to track the predictability of the index against the change in direction — positive or negative — for the next month's sales. The index has been correct record 24 out of 27 times, including in July.

So why did it go down so much last month and up so much this month?

Our assumption is that with the speed of technology today, consumers spend with their mood as influenced by what is happening on the short-term digital highway. The U.S. is having a great Olympics, so you are hearing stories about our gifted, hardworking athletes and not as much about the election or other negative economic data.

Still, you can't feel good or spend to eat in restaurants if you don't have income, so the lingering unemployment rate is dragging us down. I think this is beginning to lead our research group to look deeper at the results on a market-by-market basis.

In the month of July, we reported data on 146 designated market areas, with 64 percent positive and 37 percent negative. In every one of those markets you have the macro impact of metrics like unemployment, but you also have competitors that outperform the rest.

That leads me to the most powerful thought that seems so obvious but is seldom discussed: If our industry is truly in a market-share battle, as we believe we are, where is it won? It is won in individual markets where great operators leverage their brands' consumer equity to outperform the competition.

Yes — marketing, pricing and product are all important, but only if someone owns the result in their market. Whether you are a chain or an independent, you have to win in your market — which brings me to a comment I frequently make:

Not all boats are lifted or fall by the tide; some just out-sail the rest.

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.