UP is UP!
Our predictions of a soft month were unfortunately correct. July started out strong, but faltered later in the month. Our just released “Restaurant Industry Snapshot” for July reported positive comparable sales of +8% and negative 1% traffic versus positive +1.4% sales and -.8 traffic in June.
We based our predictions on the Consumer Edge "Restaurant Willingness to Spend Index decline from an 88 in May to 81 in June, driven by both the $100,000+ consumer and the under $50,000 consumer expectations dropping by 11 and 9 points respectively. That coupled with the Olympics in the last 3 days of the month fueled our concerns. However it was particularly encouraging to see such a strong start to the month. Our members reported positive comparable sales in food and in Alcohol Beverage. When sales did soften, it occurred predictably in dine-in, as to-go sales and catering were both very strong.
Digging into regional results, it was intriguing to me to look at various data points that might explain the differences between the top region, Midwest (+1.8%) versus the West (-.7%) at the bottom. The Midwest is being hammered with record hot weather, but is still on top. In fact the whole country has suffered except the Northwest. However none of that matters nearly as much as when you correlate the regional unemployment numbers to performance. When you dig into Bureau of Labor Statics as we do, you find that in the Midwest, very few DMA’s are experiencing unemployment above the 8.4% national average. Conversely, when you look at the West region, very few DMA’s are below that level. In fact Los Angeles and other southern California markets are still at 10.3% and higher; almost 2% higher than the rest of the country.
So what does this mean for performance of our industry?
- We believe that the consumer is essentially in a constant state of flux, as indicated by the spike in the just published July Consumer Edge "Willingness to Spend Index" which jumped six points to 87. We continue to track the predictability of the index against the change in direction positive or negative for the next month's sales. A record 24 out of 27 times (including July) the index has been correct. So why did it go down so much last month and up so much this month? Our assumption is that with the speed of technology today, consumers spend with their mood as influenced by what is happening on the short-term digital highway. The US is having a great Olympics so you are hearing wonderful stories of our gifted, hardworking athletes and not as much about the election or other negative economic data. Don't you feel a little bit better?
- You can't feel good or spend to eat in restaurants if you don't have income. So the lingering unemployment rate is dragging us down. I think this is beginning to lead our research group to look deeper at the results on a market by market basis. In the month of July we reported data on 146 DMA's with 64% positive and 37% negative. In every one of those markets you have the macro impact of metrics like unemployment, but you also have competitors that outperform the rest.
- Which leads me to the most powerful thought that seems so obvious but is seldom discussed. If our industry is truly in a market share battle as we believe we are, where is it won? It is won in individual markets where great operators leverage their brands’ consumer equity to outperform the competition. Yes marketing, pricing and product are all important, but only if someone owns the result in their market. Whether you are a chain or independent you have to win in YOUR market!
Which brings me to a comment I frequently make.
Not all boats are lifted or fall by the tide, some just out sail the rest!
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