Brands need to double-down on experience, assess value to earn guests’ shrinking share of wallet
All growth numbers are year over year unless specified. Best and worst performing region, segment and cuisine is based on same-store sales growth.
Macro-economic pressures and a complex consumer landscape continue to afflict the restaurant industry. Sales and traffic growth face difficult laps from 2021’s release of pent-up demand and stimulus.
Still, a view into three-year sales and traffic growth patterns reveals segment-specific resiliency.
Year-over-year (YoY) same-store sales and traffic experienced the fifth consecutive month of negative growth. July’s sales growth was +0.6% – a slowdown of 1.3 percentage points compared to last month. Putting it into a longer historical perspective, this is the weakest growth posted by the industry since February 2021 – the last month in which the industry lapped over a pre-pandemic month.
Guest count growth rates face a similar and, frankly, more concerning circumstance. Same-store traffic experienced negative YoY growth for the five-month period ending in July 2022. Looking at traffic numbers from the first week of August, Black Box Intelligence expects the negative traffic growth trendline will continue its streak through the end of the month. Traffic growth was -5.1% in July – a decline of 0.4 percentage points compared to June’s growth rate. Like same-store sales, this was the softest traffic growth posted by the industry since February of last year.
Shifts Within Segments Suggest “Trading Down” Due to Economic Challenges
The slowdown in sales growth was widespread throughout the industry in July. All restaurant segments experienced a fall in their YoY same-store sales growth rates during the month.
In spite of the softening, there were still top performers. July’s top performing segments based on sales growth were Family Dining and Fast Casual. The industry’s worst performing segments – those posting negative YoY same-store sales growth – were Casual Dining and Fine Dining.
Normally, a YoY comparison of segment performance is an important and fairly straightforward metric to monitor. However, when looking at 2021 vs. 2022 segment performance, the trailing impact of the pandemic is a factor and important in the context of positive or negative segment growth.
Black Box Intelligence has been opening the aperture of time to broaden the view of segment growth prior to the pandemic. Looking at same-store sales performance in July 2022 compared to July 2019, top performing segments were Quick Service, Fine Dining and Fast Casual.
Analysts took it one step further – looking at the three-year sales growth rates in July compared to the average for the previous three months in 2022. Data reveals that only two segments were able to improve their performance during the last month – Quick Service and Family Dining. On the other hand, Fine Dining experienced the largest slowdown in three-year sales growth.
The data aligns with broader macro pressures against a backdrop of inflation and the looming question of recession. Consumers continue to contend with these pressures by trading down their spending to segments and brands with the lowest average checks (typically Quick Service) or toward lower price points within Full-Service restaurants (typically Family Dining). After a strong streak as a top performer, Fine Dining’s continued waning performance last month indicates an acceleration of erosion in the segment.
Across The Industry, Restaurants Having Trouble Keeping the Experience “Worth It” For Guests
With inflation near 40-year highs and consumer budgets and bank accounts feeling the squeeze – restaurant guests are increasingly aware of and sensitive to value. Guests are grappling with what they get in terms of food and experience compared to what they pay. In other words, maybe it’s worth it, maybe it’s not. Meanwhile, restaurants are looking for reliable ways to respond with an experience that does in fact make it “worth it.”
Black Box Guest Intelligence data reveals that for those restaurants with mentions of “great price,” “affordable” and “worth it” tend to also receive the highest average star ratings from guests. Alternatively, mentions of “charge,” “pay,” “overpriced,” “waste of money” and “not worth it” tend to garner the lowest average star ratings in online reviews.
But it’s not just about price. Guest intelligence data speaks volumes on the total restaurant experience. Across both Limited-and Full-Service segments, guests tend to provide the highest value star ratings for “delicious” and “fresh” food, “friendly” service and a “clean” environment. On the other side of the sentiment spectrum, “wait” time for food and “small” portions dragged ratings down significantly.
Zooming in on the Limited-Service segment, Black Box Intelligence data shows value sentiment is well below pre-pandemic levels and in negative territory. There are several reasons for the surge in negative reviews over positive ones. Staffing imbalances have led to inconsistent execution and increased wait times. Combined with a perceived deterioration in experience and the substantial increase in check growth over the last three years – it’s unfortunate, though, not surprising to find value sentiment down for the Limited-Service segment. Guest review data in Q2 notably revealed that Limited-Service guests mentioned “overpriced” and “expensive” more often. The terms “worth it” were mentioned fewer times in Q2 than in Q1.
The Full-Service segment, on the other hand, is only down modestly from the pre-pandemic period despite average check growth and similar staffing challenges. Black Box Intelligence believes this divergence is largely due to the difference in financial profiles. Frequent Full-Service guests’ incomes typically skew higher than guests frequenting brands in the Limited-Service Segment (where there is more sensitivity to price hikes). Guest review data reveals that Full-Service guests mentioned “deals” more often and more positively. “Expensive” and “overpriced” were mentioned less times in reviews. However, like its Limited-Service counterpart, guests mentioned “worth it” fewer times in Q2 than in Q1. Full-Service guests also tended to provide higher value-related average star ratings for lunch specials as of Q2.
Pay Adjustments Key to Reducing Employee Turnover In Restaurants
Ask any restaurant operator their biggest challenge right now – and the answer very likely at the top of their list is staffing. Black Box Intelligence workforce data tells the same story month-after-month, year-after-year – and no segment is immune to its effects.
Record-high turnover rates mean operators and general managers battle to keep restaurants fully staffed. Although turnover rates are easing, they remain significantly higher than the already above average pre-pandemic turnover rates.
So, the question the industry is trying to answer: what can restaurant companies do to improve their employee retention and reduce turnover?
Black Box Intelligence recently asked that very question in a poll to restaurant professionals. The answer was crystal clear: make adjustments to their pay increase practices.
The vast majority of companies (92%) polled pointed to several tactics to help increase retention of restaurant hourly, non-management employees: increase the amount of pay when it’s adjusted and increase the frequency of those pay adjustments. More companies agreed (94%) that the same pay adjustments are even more effective for reducing restaurant management turnover.
Beyond pay adjustments, 34% of restaurant companies said they are reducing non-management turnover by altering paid time-off practices – either offering more time off or changing policies to offer greater flexibility in work schedules.
Nearly half of companies polled said reducing turnover and improving retention of restaurant managers requires a different approach. Restaurants can improve manager retention by providing or improving professional development and career pathing initiatives. The findings from the poll confirm what the industry and restaurant managers have been signaling for a while: that they are tenured, need support to understand their career path, and a plan to help them level-up skills and leadership in order to take their careers to the next level at their current company.
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