According to CNN, chain restaurants have reported increased sales in the third quarter of 2022. However, this is not due to growing foot traffic, which has been falling, thanks to inflation. Instead, the increase in sales is due to rising prices.
Placer.ai, a traffic analytics platform, reported that January foot traffic was up 20% and 31% for fast casual and full-service restaurants, respectively. By August, however, traffic dipped 1.7% and 4.7%, signifying a clear impact on restaurant visitations.
Inflations Continued Impact & Improved Labor Outlook
In recent months, customers have cut back on restaurant visits. According to Blackbox Intelligence, restaurant sales in October 2022 were up 5.2% year-over-year. Traffic, however, was down 3.2%. This traffic erosion has been apparent for eight months in a row. The National Restaurant Association reported that in September, industrywide sales grew to $87.2 billion, the highest since January 2021. However, when adjusted for inflation, sales in Q3 were actually down $1 billion compared to the previous quarter.
Consumers seek more value-focused offerings and trade down as inflation retains its hold. Yelp’s Q3 Economic Average report revealed that searches for budget dining and grocery options were up 11% in Q3 compared to Q2. Searches for fast casual and fast food were up 10%.
This change in dining has left some restaurants uncertain about the next six months. A survey by the National Restaurant Association in September revealed that 43% of operators surveyed expected worsening conditions. This expectation is reducing operators’ plans to increase staff for the holidays. According to Alignable’s Holiday Hiring Report, 48% have no plans to hire seasonal or permanent employees for the remainder of the year, and 8% are laying off employees due to reduced revenue.
On the other hand, the end of Q3 2022 showed back-of-house staff levels averaged three more compared to June, translating to a BOH headcount above the 2019 level and well above the last two years. Turnover rates, however, remain high, increasing in the last two quarters. Additionally, the number of long-tenured employees in full-service is down about 20% compared to pre-pandemic years.
Impact On Independents
Chains possess larger budgets and advanced technology tools, and their size offers bargaining strength and greater leveraging ability with suppliers. For example, Noodles & Company, a chain with over 450 locations, signed a contract for its 2023 chicken supply that will help the brand save about 2%, according to CNBC.
On the other hand, independent restaurants aren’t slowed down by bureaucratic red tape that can impact larger chains’ ability to respond quickly to changing market conditions and consumer behavior. In a matter of hours, independent operators can readjust recipes, remove menu items, and change prices. Additionally, independent neighborhood eateries generally have the local market going for them, with consumer sentiment leaning toward supporting these establishments in tight conditions.
As uncertainty takes hold, restaurants are taking proactive measures. These include beefing up their loyalty programs. A Rewards Network survey reveals that almost every major chain, including P.F. Chang’s and Panera, have revised or created a loyalty program that offers discounts and tracks customer data.
Operators have also been optimizing their menus for some time, with 31% reducing their menu offerings and 30% substituting lower-cost ingredients. Smaller menus result in easier-managed food costs and inventory tracking. These managers are also promoting higher-profit items. Increasing beverage sales, sides, and appetizers play a significant role in today’s challenging economy.
EMERGING’s F&B Insights was developed to help restaurants combat concerns when raising prices. It’s the world’s largest menu database, giving you the competitor and market pricing information you need to confidently make informed decisions and price. To learn more about strategies operators use to get through a challenging economic environment or to schedule a consultation, contact EMERGING today.
Why are restaurants declining?
In response to higher menu prices and continued inflation, consumers show signs of trading down to lower-priced items or reducing their number of restaurant visits. Full-service restaurants have recently lost the most traffic. About 43% of restaurant operators feel that economic conditions will worsen, the highest level of negative sentiment since 2008. That said, our current economy does not resemble the 2008-2009 recession when employers cut almost 9 million jobs.
What are the slowest months for restaurants?
That depends mainly on where a restaurant is located and its target market. For many, the slow months hit at the end of summer, when kids are going back to school, and the long days of summer end. However, restaurants in areas that see significant winter storms can experience their slowest months in the winter. Ensure your restaurant has a solid takeout and delivery plan in place to help weather seasonal changes.