E Why Are Restaurants Talking About Weather?

The Reason Behind the Discussion of Weather Woes

We all know that eating out is a discretionary activity. People have to eat, but they don’t necessarily need to go out to or order from a restaurant to do it. We all know this, restaurants are a mostly but not totally a convenience model and this reality is part of our business model, it is what makes retail exciting and unpredictable.

During this quarter’s earnings call cycle to date, many restaurant chains have mentioned weather in their commentary. In the US, in Quarter One 2017, for example, we know there was rain on the West Coast, unusual warmth in the East and then a March snow storm. What does this mean from brand to brand? How do the plusses and minuses get scored consistently?

When the weather is bad, it is mentioned. But when the weather is too good, it is not mentioned. Restaurant chains have been tracking the weather forever. My career long experience is that warm, sunny days and pleasant evenings such that people can be out and about, even dining outside, is best. Many casual dining and some QSR brands have invested in outside patios. Heavy rain, snow, extreme temperatures are negatives. Even destination brands (think: Cheesecake Factory (CAKE), Del Frisco Double Eagle (DFRG), Maggianos (EAT), have some impulse customers and are affected.

But I’ve never heard a brand note that the weather was too good, and adjust their comps downward accordingly.

The problem in weather impact analysis is every brand is different. Weather affects drive thru brands less (with 70% of the traffic from people in cars) and stores located in line or on mall pads more, where people have to walk in the weather. Dominos (DPZ) though prefers snow and special events as a trigger to delivery. In some resort areas, rain is a positive driver to sales as people aren’t at the beach or other outdoor activities. The coffee brands maintain that cold weather helps them (DNKN has noted such), but with the advent of cold beverages, one can argue that old cold weather/hot beverage relationship breaks down since the product offerings have changed.

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

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