All growth numbers are year over year unless specified. Best and worst performing region, segment and cuisine is based on same-store sales growth.
Restaurant sales growth remains strong year-over-year, but the last two months of the year showed there is some slowdown already in effect. Same-store sales growth was +4.8% in December, an acceleration of +1.5 percentage points compared to November’s year-over-year results. However, these two months were the weakest for restaurant sales growth since the industry saw a rebound back in August of 2022. Average sales growth for November and December was +4.1%, compared with a stronger +5.1% average for the period between August and October.
But the biggest struggle for restaurants continues to be growing their guest counts. Same-store traffic growth year over year has been negative since March of 2022, and December was not the exception to this trend. Traffic growth was -3.5% for December, which did represent a +0.8 percentage point improvement compared with the previous month’s growth rate. However, December’s number was only able to climb back to where the industry was before. The average traffic growth for the period between August and October 2022 was also -3.5%.
Comparing the industry’s sales to what they were back in 2019 to eliminate any noise due to the pandemic also shows a slowdown in December, with the month posting the weakest 3-year same-store sales growth since March 2022. Which segments grew their same-store sales the most in December 2022 compared with the same month back in 2019? The answer is those in limited service (quick service and fast casual, with the former positioning itself as the top performer in the industry) and fine dining.
Despite COVID hospitalizations and deaths decreasing, lockdowns becoming nonexistent, and mask mandates increasingly becoming a relic of the past, the consequences of COVID remain.
Aside from Q1 which was negatively affected by the Omicron variant, in most respects 2022 has been the first “normal” year since the lockdowns. But consumer behavior has yet to return to pre-pandemic norms.
Change in Habits
According to a Google Covid-19 Community Mobility Report, as of October 2022, the number of visitors to grocery and pharmacy stores were down by -2% compared to pre-pandemic baseline days (the median value for the 5-week period from January 3 to February 6, 2020). Visits to transit stations were down -17% and most relevant to the restaurant industry, retail and recreation were down -9%. This is in step with Black Box Financial Intelligence data, which shows the industry is down -8% in traffic compared to 2019.
Perhaps a regression to the mean is still in the cards and merely taking longer than expected, but the more plausible explanation is that consumer behavior may have changed permanently. Visits to the workplace are down 20% according to the same study. This isn’t an aberration waiting to flatten out. COVID lockdowns may have radically accelerated this shift towards work from home, but the trend started well before 2020.
Where Does It Affect the Restaurant Industry?
How has this change in lifestyle affected the restaurant industry? One place to study is commuting data. The US census classifies all zip codes as “high commuting” (areas where 30% of the population commutes outside the area), “low commuting” (areas where 10-30% of the population commutes) and “core” (areas where high numbers of the population commute into).
First impulse would suggest that with fewer people commuting and going into the workplace, core areas would be down the most from 2019. However, when these census classifications are combined with Black Box Financial Intelligence data, this instinct is proven incorrect. Low commuting areas have been hit the hardest. Traffic is down nearly -14% since 2019. Core zip codes are down only -10% and High Commuting areas have declined the least at -9% growth. With some of those former commuters in those High Commuting areas now staying home to work (at least some days each week), they may be now visiting their local restaurants more frequently during the workweek. The narrative holds for same-store sales as well, while all three zip code classifications have improved, Low Commuting areas have seen the least growth, while those classified as High Commuting are seeing the biggest gains in sales compared to 2019.
A Paradigm Shift
What explains this counterintuitive result? A recent Washington Post article speculates that perhaps the country’s entire attitude around the industry has shifted, and that consumers are spending their money along the poles of the industry. They either want easy and cheap off-premise meals or go all-out on an “experience” with an emphasis on atmosphere, ambiance, and more. Black Box Intelligence data sees similar trends. Although the industry saw a negative 3-year traffic growth, the only segment which recorded positive growth was Fine Dining. The segment most suited for “experience.”
Additionally, within this 3 year framework, off-premise has been a key driver for growth. If we dig a little deeper into the commuting area classification, a major contributor for Core and High Commuting areas performance was due to off-premise sales. These grew the fastest in Core communities back in 2020 as the industry adapted to the pandemic. As of 2020, off-premise sales growth continues to be stronger in these communities that attract commuters instead of seeing people leave to work elsewhere. Second-highest off-premise sales growth was in High Commuting communities.
When this new data is factored in, the contrast between the commuting areas becomes clearer. The largest growth for restaurants is happening in those places where people commute out of the most, followed by those in which people commute into or stay for work within that same community. The commuting population is often looking for something fast, convenient and frequently also inexpensive on their way to work or going back home. Work-from-homers and on-site workers are also looking for something easy (often after working non-traditional hours) and have a new need, after spending most of their time in the same place, they’re looking to pay extra for an “experience” away from home. In all of these cases, off-premise meals from restaurants remain a very attractive solution. The post-Covid shift is not entirely a question of where, geographically, to eat but also what need it is filling.
Understanding the Out of the Box Insights
- Financial metrics are based on year over year growth unless otherwise noted
- Off-premise sales include: to go (pickup), delivery, and drive-thru (where applicable)
- Limited-service includes quick service, and fast casual
- Full-service includes casual, family, upscale casual, and fine dining
- Limited-service segments: quick service and fast casual
- The Western region does not include California, California as a state is considered its own region