guestXM – by Black Box Intelligence

Despite Staffing & Traffic Challenges, Restaurants Achieve Best Sales Performance in Years

July 2021 marked a significant milestone for the restaurant industry with robust sales growth of 8.1%, signaling the industry's recovery from the pandemic's impact, though challenges in terms of traffic, staffing, and rising costs persist.

Restaurant Industry Snapshot™ – July 2021

With 8.1% sales growth in July and steady improvements in monthly sales growth since March, the restaurant industry achieved its best month in years: extending well beyond the start of the Coronavirus pandemic.

Sales growth improved for all industry segments in July for the first time since January of 2020. Fine dining was the top performer followed by fast casual and quick service. Family dining, which has struggled the most in the last year, posted modest sales growth for the first time since February 2020.

Still, guest counts point to the reality that recovery continues to be incomplete for the industry. Traffic growth was -3.7% during July. Although this was the best month for the industry based on traffic since the beginning of the pandemic, it represented only a 0.5 percentage point improvement from June.

*2-year comp sales and traffic (only applies from March 2021)

Regional & Market Performance

There was a spike in the number of new COVID cases at the beginning of July that accelerated throughout the month. Though restaurant sales improved nationally, at the state level there are signs of a slowdown in restaurant activity because of these new health concerns. Compared to June, 11 states experienced a drop in restaurant sales in July: Alaska, Wyoming, Arkansas, Oklahoma, Arizona, Missouri, North Dakota, Texas, Georgia, Nevada and Florida.

While sales growth slowed, it was far from the freefall experienced by the industry in March of 2020. Some hotspot COVID states show the resilience of the industry as it faces this new challenge. Sales growth in Arkansas dropped 3.2 percentage points, but sales performance in July was 9.0% higher than in 2019. Similarly, Florida’s sales growth was 9.0% during the month, a decline of only 0.7 percentage points compared to June. Finally, Louisiana had a significant improvement in sales growth during the month.

The Restaurant Workforce

Job Growth & Turnover

Restaurants hired aggressively in July, adding 940,000 new jobs. About 1 in every 4 new jobs created by the overall economy during the month were added by restaurants. Even still, the big gains in employment may be behind us. While an estimated 8% of the pre-pandemic restaurant workforce has not yet returned to the industry, the percentage of restaurants that closed permanently because of COVID suggests we have reached a ceiling for big gains in more restaurant jobs.

Also, while many people may have been hired by the industry, local labor market conditions vary widely throughout the country. Furthermore, hiring employees is just one part of the equation; turnover data shows staffing challenges are as much an employee retention problem as they are about recruiting.

Industry rolling 12-month hourly employee and restaurant manager turnover rates are currently higher than they were in 2018 and 2019. Limited-service turnover rates are also currently higher than they were in 2020.

Despite efforts to improve staffing in June, no progress was made. The average limited-service restaurant operated with 1.2 fewer employees per location compared to 2019. That number was better (0.8 fewer employees on average) a month ago. In full-service restaurants, the number remained flat. The average restaurant location operated with 6.2 fewer front-of-house and -2.8 fewer back-of-house employees.

Cost of Eating Out at Restaurants is Growing

Accelerated growth in average check remains the driving force behind the restaurant sales recovery. Guest checks grew by 12.6% during July, up from 11.8% a month ago.

Average check grew by 4.6% year over year in July. A range of factors fuel the rapid growth in average guest checks. Wages have grown at a faster pace as operators compete for talent in a challenging market. In addition, commodity costs, particularly chicken and other proteins, are skyrocketing. Pressure on restaurant margins is high. According to a recent Black Box Intelligence™ operator poll, 70% of restaurant companies have increased menu prices in response to rising costs.

When comparing restaurant prices to food purchased from grocery stores, restaurants are at a disadvantage. Restaurant prices have grown at a quicker pace since the beginning of the year, but the gap has widened in recent months, according to the Bureau of Labor Statistics. By July, restaurant prices grew 4.2% year over year, while prices for food to be prepared at home increased by only 0.9%.

Sales Swing Back to Off-Premise in States with Rising COVID Cases

At the national level, new concerns surrounding COVID and the Delta variant have not yet caused a shift in restaurant off-premise sales growth. Off-premise growth remained high and relatively unchanged during July, but the latest data shows a shift towards increased off-premise sales in those states that have been more severely affected by the upswing in virus cases.

Off-premise sales growth in Louisiana was 45.2% in July, an increase of almost 15 percentage points from June. In Arkansas and Florida, off-premise sales growth was over 59%. Both had an increase above 3.0 percentage points during the month.

Macroeconomic Outlook Remains Solid

Commentary provided by Joel Naroff, President of Naroff Economic Advisors

Economic activity boomed in the spring and that momentum carried over to the summer. Monthly job growth was some of the strongest in history, especially in leisure and hospitality. But the need now is to focus on next year, as planning season is here. This is where the government comes in. On the negative side, the supplemental unemployment income payments, the dominant driver of income gains that have supported the strong household spending, will be disappearing next month. But there are offsets. The childcare credit is adding to income. Some unemployed workers are securing higher pay when they return to their jobs due to the labor shortages. With so many positions unfilled, payroll gains should be solid for an extended period, further adding to income. Finally, President Biden’s first budget, whatever is passed, will likely contain significant new spending, supporting growth in 2022.

The outlook is for the expansion to moderate significantly next year, but it should still be solid. That pace implies decent but not spectacular gains in restaurant spending. As for inflation, the global supply chain issues should fade, but it could take all of 2022 before they are resolved. The implication is that commodity price gains are likely to be high, even if they are significantly lower than those experienced in 2021.

Looking Ahead

The Restaurant Landscape in the Coming Months

Average guest check is expected to continue growing at an unusually fast pace. While that will help sales return to positive territory it will create a barrier for traffic recovery, especially considering that grocery prices are increasing at a much slower pace.

The new COVID wave aside, the primary challenges for restaurants in upcoming months continue to be rapidly rising costs, both from a commodity and labor perspective and keeping restaurants fully staffed. Little relief is expected on both fronts, at least through August. Nevertheless, although the preliminary data suggests it will not be a complete solution, the end of the expanded federal unemployment benefits may provide some help with staffing difficulties starting in September.


*Unless otherwise indicated, numbers are reported using 2-year metrics, all sales & traffic metrics are same-store sales & traffic metrics unless otherwise indicated, and off-premise sales include to-go, delivery, and drive-thru sales (where applicable).
The Black Box Intelligence Restaurant Industry Snapshot™ includes industry-leading financial performance metrics including sales and traffic from the largest set of real restaurant data at the region and market level. This monthly update also includes workforce trends, as well as expert commentary from Black Box Intelligence analysts. Each update provides context around economic conditions, regional benchmarks, and a look at what’s to come.
Black Box Intelligence™ is the leading performance benchmarking provider for the restaurant industry connecting the dots on people, profits, and performance. Their unparalleled data set reveals insight into financial, workforce, guest, and consumer trends from over 300 brands and 87,000 restaurant units. Black Box Intelligence is also the producer of The Best Practices Conference held annually in Dallas, Texas.

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