June Recovers from May Lows, Economy Still Struggles
What is going on? That is the question we find being asked by operators and investors. Is it the economy or me? Well, as Ricky said to Lucy... You got some 'splainin' to do! I will try to give you our read on a very perplexing situation. Let's start with the numbers as we always do at Black Box Intelligence.
Comp sales and traffic for the month of June came in at 1.5% and -0.6% respectively. For the quarter sales and traffic were 0.7% and -1.6% respectively. The volatility of the quarter was pretty wild as we reported comp sales at 1.3% in April, -0.4% in May and 1.5% in June.
Our partners at Consumer Edge Insights reported the same kind of volatility in their Restaurant Willingness to Spend Index. In April the index registered at 83, increasing into May at 88 and then dropping back down again in June to 81. By the way, this index has been predictive in 23 out of 26 months of what the following month's sales direction would be. That in itself suggests a difficult July coming. I wish I could say it isn't so!
The data suggests that the consumer is positive about the decline of gas prices, but looking for value by controlling their spending. Such items surveyed as leaving a smaller tip and using a loyalty card offering discounts became more common from the beginning of the quarter to the end of it. As I mentioned last month there is a softening in each of our segments and what we see in publicly reported QSR companies.
In the People Report data we see increasing pressure on hiring and a concern about the impact of new health care laws. This will provide even more volatility for operators as we anticipate and make adjustments to react to the reality of this legislation.
Given the marginally positive comp sales growth in Q3 2011, it should be relatively easy to maintain positive comp sales through Q3 2012, although there is still significant ground to recover from the lows of Q3 2009. An additional obstacle for Q3 2012 will be the Summer Olympics taking away dine-in sales, which creates a great opportunity for restaurants to bolster to-go transactions, offsetting a potential drop in overall sales.
Additionally we saw the check/transaction average move down suggesting operators have slowed their price increases or are implementing more aggressive discounting. We remain concerned with negative traffic which as mentioned was -1.6% for the quarter.
So who wins and who loses will be dependent upon the operator's ability to incorporate sustainable value into their offering, manage expenses (especially human capital costs) and communicate clearly and effectively what the brand stands for in the eye of the employee and the marketplace.
So what can you do? Turn off the news, stop listening and reading economic reports and go out to eat! Please!!