E Restaurant Recession? Just The Facts

Table One: Years of Food Away from Home Spending Contraction (1945-2014) [3]

BLS Food and Drinking Place Data More Favorable: US Bureau of Labor Statistics continues to report higher food and drinking place sales month after month, over prior year, per their survey. The BLS data is a sample submission of both independents and chains.

Table Two: BLS Monthly Advance Food and Drinking Place Sales vs. YAG [5]

Restaurant Fundamentals Haven’t Changed: there is still no biological imperative to go out to eat other than social and convenience, but those are powerful motivations. Real gross domestic product (GDP) and real consumer disposable income (DI) continue to drive the business, as the very recent Piper Jaffray [6] Report shows. There have been only two periods of GDP contraction, 1982 and 2008/2009, as below.

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Grocery Store Gap Problem: grocery store prices have deflated while restaurant prices have increased steadily since 2014: this is the food at home versus food away from home gap that McDonald’s is so fond of measuring. See Table Three:

Table Three: Grocery Store v. Restaurant inflation [7]

Conclusion:  For a US restaurant recession to occur and deepen there has to be some kind of catalyst factor—in the last two cycles, 911 and the Great Recession of 2008-2010. It is true restaurant sales began to decelerate and then decline in 2001 and 2008, principally in the casual dining segment, prior to the shock and awe events those years. With employment, GDP and disposable income trends now solid, an economy wide recession isn’t seeable now.  However, it seems also true that chains who report same store sales are not getting the share of growth that we all want. 

We see the effect of the food at home versus food away from home gap factor as the industry slowed in 2015 and 2016. This does not explain same store sales softness at the higher average ticket restaurants, where we know incomes and the propensity to dine out are higher.  Many comments from them point to a slowdown in corporate expense account sales activity, the so called private dining segment, however. This is she so called election effects that Malcolm Knapp properly called earlier this year.

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Disclosure: The author has no positions in any stocks mentioned.

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