All growth numbers are year over year unless specified. Best and worst performing region, segment and cuisine is based on same-store sales growth.
After experiencing the softest sales growth results in over a year during this past June and July, the restaurant industry has since enjoyed a strong rebound in its sales that started in August and has extended into October. In fact, October’s same-store sales growth of +5.2% year over year matched last month’s, with both tied for strongest performance since March of 2022, when the industry was still lapping over weaker results due to Covid.
On the guest count front, there continues to be good and bad news. Yes, the robust sales rebound was felt in traffic growth too, with same-store traffic growth reaching -3.2% in October, a 0.4 percentage point improvement over the previous month’s year-over-year growth and a vast improvement over the -6.8% recorded for July. This was also the best performing month since March based on traffic growth. But despite the improvements in recent months, the stark reality is that restaurant guest traffic continues eroding compared to the previous year. Same-store traffic growth has now been negative for eight straight months.
Despite the declining guest counts, the primary driver behind the industry’s sustained increase in sales remains the unusually high average check growth. Year-over-year check growth approached 9.0% during October, in line with the previous two months. Leading the industry in average check growth during October were casual dining and quick service, while the segments with the smallest increase in check were fine dining and upscale casual. But even if some segments are seeing their checks rise at a slower rate than others, all segments are experiencing higher check growth compared to pre-pandemic.
There are positive results for the industry when looking at the sales data from a longer-term perspective. Calculated on a 3-year basis, same-store sales growth during October (compared to October 2019) revealed all industry segments are maintaining positive growth for the fourth consecutive month. The best performing segment based on 3-year sales growth for the fourth month in a row was quick service, followed by fine dining. The segments with the weakest 3-year growth remain family dining and casual dining.
Full-Service Back-Of-House Staffing Improves, But Training and Coaching Needs Increase as Average Tenure Drops
At the end of Q3 and before the heavy volume holiday season commences, full-service restaurants have shored up their back-of-house staff. In fact, back-of-house staff levels average three more employees per restaurant location compared to June, bringing the back-of-house headcount per unit above the 2019 level and well above September levels the last two years.
With roughly 2.5 additional new employees per restaurant than in recent quarters, training will be key as they learn their way around the kitchen, where tenure for back-of-house employees still needs to be achieved. But the good news is the higher staff count builds the bench for a more demanding season up ahead and provides relief when employees need a break or are out sick.
Beyond the training provided by managers, new employees can benefit greatly from the coaching of the most tenured staff. Although, as turnover remains high and has increased the last two quarters, there continues to be fewer long tenured employees (2-year plus experience with the brand). The average number of long tenured back-of-house employees in full-service is down almost 20% per restaurant compared to pre-pandemic levels.
Improved Back-Of-House Staffing Positively Impacts Wait Times for Food, But Other Challenges Emerge
Compared to Q2 when back-of-house staff levels were lower, based on guest reviews captured by Black Box Intelligence during Q3, guests more frequently mentioned receiving food “quick” or “quickly”. Also, there were less mentions of “long” time to receive food or “finally” receiving food, as well as less “wait” and “minute” mentions. These trends suggest that food is getting through the kitchen and in front of the customer faster and when this happens guests tend to reward the restaurant with a higher star rating.
However, the downside of newer back-of-house employees is the learning curve, which can negatively impact the guest experience. Perhaps due to a greater mix of employees with 6 months or less of tenure, the mention rate of “overcooked” food increased compared to last quarter, as well as more mentions of “salty” food.
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