Are consumers becoming more cautious and spending less at restaurants? The mounting evidence suggests yes.
On Thursday, Buffalo Wild Wings ( BWLD - Get Report ) reported its second consecutive earnings shortfall, sending shares plunging 17% in midday trading. Same-store sales at company-operated and franchised locations rose 3.9% and 1.2%, respectively, during the quarter.
The sales gains marked a slowdown from the start of the quarter in July, when same-store sales at company-operated restaurants were up 4.8% and higher by 2% at franchise locations. And sales have cooled further into October.
"I don't know that it's something competitive, we tend to move with the restaurant industry and I think you are hearing that September and October sales were a little bit softer," said Buffalo Wild Wings CEO Sally J. Smith when asked about the slower pace of sales from a chain known for posting strong gains .
Encouragingly, Smith said she has not seen consumers trading down to cheaper menu options. Traffic to restaurants is still increasing, too, although not as quickly as it had been.
But Buffalo Wild Wings isn't the only restaurant company seeing weaker results recently. Dunkin' Brands ( DNKN - Get Report ) pre-announced slowing sales growth for the third quarter on Oct. 2, in part as consumers balked at recent menu price increases , sending its shares down 12% that day.
The company went onto report Oct. 22 that third quarter U.S. same-restaurant sales at Dunkin' Donuts restaurants increased 1.1%, moderating from a 2.0% gain in the second quarter. Traffic to Dunkin' Donuts U.S. locations fell 0.7%, after rising 0.6% in the second quarter.
"If you look at all of the recent data, some [consumers] are clearly saving some more, some are clearly spending on some big items such as autos," said Dunkin' Brands CEO Nigel Travis in an interview. Overall, though, Travis believes the consumer is "in a good place."
Even at fast-casual restaurant Chipotle ( CMG - Get Report ) , which for the past year has logged impressive sales gains in spite of a series of price increases, the third quarter proved less than stellar .
On Oct. 20, the better burrito giant, boasting a reputation for routinely trouncing Wall Street's profit estimates, reported earnings of $4.59 a share, falling short of Wall Street's forecast of $4.62 a share. Same-restaurant sales rose 2.6% for the
Chipotle execs admitted that sales in October have been "very, very choppy", and cooled in August and September following a burrito giveaway promotion in July.
Chipotle's shares have shed about 8% in the last month.
The steady drumbeat of slowing sales and missed profit forecasts from several key players in the restaurant industry coincides with a slowdown in the U.S. labor market and heightened stock volatility that hit markets during the summer. Subsequently, consumer confidence has been dented, which may be leading to the slowing sales at top restaurant chains.
In October, the Conference Board's Consumer Confidence Index fell to 97.6 , missing estimates for a reading of 103. September's reading was 102.6. "Consumers were less positive in their assessment of present-day conditions, in particular the job market, and were moderately less optimistic about the short-term outlook," said Lynn Franco, Director of Economic Indicators at The Conference Board.
Meanwhile, the National Restaurant Association's Restaurant Performance Index (RPI), which tracks traffic and same-store sales trends at the nation's restaurants, declined to its lowest level in 11 months in August, falling about 1.2% from July. "Same-store sales and customer traffic softened from July's strong levels," Hudson Riehle, senior vice president at the association, wrote in a
statement.
I really don't think it's thriftier consumers. I think it's more like people like me who don't want to go out to eat and pack on pounds before the heavy eating of the upcoming holiday season.
I think you have a point about the upcoming holiday season.
Both weight gain concerns, and budgeting for holiday expenses, including gifts are also factors.
The job market continues to suck bilge water.
With the middle class eviscerated, that doesn't help matters much.
As you mentioned, health concerns also aren't helping fast food chains.
Finally, as the population ages, limited budgets force people to prepare their own meals increasingly.
All that said, I don't see all restaurants going under.
There will be shake outs from time to time.
That happens in any industry.
Good article Randy.
E.
Finally, as the population ages, limited budgets force people to prepare their own meals increasingly.
We don't actually prepare a meal except on Thanksiving and Christmas. We usually pick out whatever we like when we are out the grocery store and eat it whenever we want it. I can honestly say that in more then 20 years of marriage we have never had a meal at our dining room or breakfast nook table.
My wife and I do celebrate Thanksgiving, a least as far as the food goes. Our families have drifted apart (in many ways) and are in many sections of the country, most of them too far away to get together, though I doubt we would anyway. We make a Turkey for Christmas too, but we don't celebrate Christmas for the usual reasons, since my wife is Jewish and I'm an atheist, however we do celebrate on Christmas Day as it is our wedding anniversary day.
Personally the "restaurants" sited here are overpriced, sit-down, fast food eateries pushing over-processed, fat laden bill of fares. We've found the average bill for us is in the $40 to $50 range, which is absolutely ridiculous. Unless traveling on the road, we no longer eat at these places.
I'd rather "save" the money and as a treat go to a real restaurant that uses locally grown vegetables, local meats and has a chef, not a short order cook. Fortunate to have a couple restaurants that source their food in a 50 mile radius with menus reflecting where the food comes from. Nothing like hormone and antibiotic free meats and eggs, along side organically grown veggies....delicious and good for us!