The 2018 Restaurant Industry Performance Divide
Navigating the Restaurant Industry’s ‘One Percent World’: Top vs. Bottom Performers
Several months into the year, 2018 has given restaurants some reasons to be optimistic. For the first time in three years, the restaurant industry experienced back-to-back quarters of positive sales. Yes, positive sales growth. Are things beginning to turn around?
Recent trends are encouraging. However, a closer view of industry performance since last fall suggests that chain restaurants seem to be operating in a “one percent world.”
This “one percent world” refers to monthly comp sales growth consistently fluctuating between -1 and +1 percent. Despite the solid economy and relatively easy comps, the overall industry still lacks momentum and can’t seem to generate traction. Why?
Countless articles and conferences debate the issue. Over-supply of restaurants, changing consumer tastes, the rise in off-premise consumption, competition from independents, meal kits, etc. Taken together, they help explain the rapidly changing restaurant landscape.
But in addition to these well-documented trends, there’s also a less obvious movement at work. We’ve noted a growing disparity between top and bottom performers in the industry.
Top Versus Bottom Quartile
Black Box Intelligence defines top quartile performers as restaurant brands in the top 25 percent of comp sales performance; it’s the opposite for the bottom quartile. Since the beginning of 2016, top-quartile brands have continued to report steady improvement in sales performance. Meanwhile, brands at the bottom are trending slightly downward over the same period. In other words, the gap between top and bottom performance is growing.
This isn’t an issue of industry segment. No individual segment or cuisine consistently dominates. Five of the six restaurant segments Black Box Intelligence tracks have been the top monthly performers at least once since the beginning of 2017. Five have also been the bottom performers over the same period. Fine dining and upscale casual are the strongest segments so far in 2018, but they’re only about 60 basis points better than the industry.
What’s not generally discussed is that there is a widespread performance even with segments. Casual dining’s struggles over the past couple of years have been well documented. But there are casual dining brands in the top quartile. Conversely, the bottom quartile is represented by fast casual, upscale casual, and fine dining restaurants. The relative strength of its segment doesn’t determine a brand’s performance. Success is determined by how well it executes, irrespective of its slotting in the industry.
Restaurants’ Road to Success
From our experience with over 200 restaurant chains, we see three common characteristics across top performers.
First, brands need focus and vision. Competition for customers is more intense than ever. It’s critical to establish and communicate a unique positioning and value proposition. No brand can be everything to everyone. You can’t cater to every individual for every meal occasion. Pick what you’re good at and known for and build on it.
Second, consistency matters. This doesn’t mean doing the same thing every time. Mechanical execution, even if delivered according to a script, is obvious and insincere. Consistency is staying in touch with what your guests expect and delivering the brand promise in a way that’s relevant to how they want to be served today.
Finally, never lose focus on your staff. Time and again, Black Box Intelligence insights demonstrate the strong linkage between service, social sentiment, and performance. Top brands make the strategic commitment to invest in people who build and maintain a culture that helps create sustainable competitive advantages.
Mathematicians will point out that, by definition, there will always be top and bottom quartiles. But to break out of the one percent world, the gap between top and bottom-performing restaurants needs to shrink. Brands consistently in the top quartile have the formidable challenge of lapping strong results. Those consistently at the bottom don’t have the luxury of making minor course corrections.
Consumers are agnostic as to segments or categories. As an industry, we’re shortsighted when we only focus on direct competitors. Better to identify what makes good brands tick regardless of their service type or cuisine. What can we learn about how they focus on vision, consistency, and people and apply them to our operations?