Tag Archives: Traffic



We will know more specifically, as companies start to report results,  in the next several weeks how the second calendar quarter developed relative to sales and traffic. Anecdotally (see Postscript below), however, we hear nothing particularly encouraging. The late spring early summer numbers that showed sales up low single digits and traffic down low single digits seems to be continuing (see Postscript below), which has basically been the case for the last two years. Quick service restaurants that provide a midday (food) fuel stop seem to be holding up a bit better than full service casual dining companies that are required to provide an experience to help  justify the much higher average ticket. While wage rates are moving higher, discretionary income is not. Five dollars is the favored price point at lunch, but when a family of four sits down for a full service meal at Applebee’s, it is going to run upwards of $50.00 with tax and tip and that is a noticeable after tax expenditure. The weather was unsettled in many parts of the country in the last couple of months and that can also affect traffic by a point or two which is the difference between “strong”, “mediocre”, or “weak” sales these days. A constant drumbeat from newscasters about tariffs is affecting not only the business world but dining customers who understand that budgets have to balance at some point. National economic discourse, where debt doesn’t matter to the existing administration and unlimited social programs are the mantra for the Democratic contenders, is no doubt further unsettling relative to consumer confidence. Without question, for any number of reasons, the economy is slowing. Sales and traffic trends are unlikely to buck this reality, and we will let you know when they do.

From an operator’s standpoint: they continue to be pleased by a more business friendly environment. However, you can’t pay the rent with an intangible such as “less regulation” and lower taxes was last year’s story. Wages move inexorably higher, and there is no material expense that is moving lower. The only thing that can help restaurant margins is higher sales, and one or two points of sales improvment is not enough to overcome higher costs. Our expectation, therefore, is for more of the same as Q2 reports are made public. The better operators will come close to maintaining margins, but most year to year comparisons will not look good. The lower tax rates last year allowed many companies to show strong year to year after tax earnings, though pretax operating earnings were down in many cases,  but that will not be repeated in 2019. Stock repurchases could help some companies, but fewer than last year as some companies have already leveraged their balance sheets.

We leave you with some good news. (There had to be something, right?) Though too many operators are sitting with real estate that is fully utilized only on Friday and Saturday nights, there remains a great deal of opportunity relative to food consumed “offsite”. Curbside pickup, takeout, and catering all offer opportunity, though they are different business to a degree and must be managed accordingly. At least you don’t need more square footage. Furthermore, margins on delivery service should start to improve as Doordash, Ubereats, Grubhub and the others compete for business. Delivery is a necessary evil these days, but restaurant companies can’t afford to cut 20-30 points out of their gross margin. Many operators have suggested that delivery business is largely incremental. We accept that delivery is incremental, in part, but it stands to reason that if a customer has food delivered tonight, they are far less likely to visit that same restaurant tomorrow night. Delivery will be become more profitable (at least less of a burden on margins), and delivery companies will experience margin contraction, which they may or may not be able to offset with operating efficiencies.

Roger Lipton

P.S.  No longer “anecdotal”. Just received the highly regarded Miller Pulse survey results through June. Headline is positive (“June Sales Cap Off a Solid Second Quarter”) but details show more of the same. Overall restaurant same store sales rose 2.0% in June, up 2.1% for Q2 as a whole. The QSR segment was up 2.3% and Casual Dining was up 0.4% in June. The 2.0% result in June was, as Miller Pulse put it “a model of consistency, remaining in the narrow 2.0-2.3% range since the dip in February”. Importantly, “traffic, as is the norm these days, was weak again at -1.7% for the month”. In summary, the numbers confirmed our anecdotal conclusions.




There is not much to celebrate among restaurant industry operators. “Flat” is better than “Down”, but sales and traffic trends continued to be lackluster in April, and there is no reason to expect a change in May (now history) or the month to come. We have described many times how the dining industry has been an excellent leading indicator relative to the economy.  We suspected earlier this year, as our readers know, that the lack of momentum in the restaurant industry indicated that the economy was unlikely to break out on the upside. That has proven to be the case as the slowdown in the economy is clearer by the day. The latest GDP expectations for the second quarter are in the 1.25-1.5% range, a lot lower than the 3.2% of the first quarter, and bringing the first half very close to the 2.3% of the Obama years.

While some worse numbers than shown below have circulated, we quote below the Miller Pulse survey numbers.

Back in restaurant land: Continued weak traffic was the feature in April, with higher check values (up 4.1%) overcoming a 2.1% traffic decline and bringing same store sales to a 2.1% increase. As we have said repeatedly, that is not enough to overcome higher labor, rents, and other operating expenses, so margins will continue to be challenged. The two year stacked comp is up 3.8% in April, down 10 bp from March.

By segment:

Quick service restaurants were up 2.7% in April, with 4.6% check average overcoming 1.9% traffic decline. Over two years, QSR SSS fell 30bp month to month to 4.3% so not much has changed.

Casual dining did worse, with same store sales down 0.5% in April even with a boost from the Easter calendar shift, and traffic was down 2.8%. Over two years, SSS was up 60 bp to a lackluster 1.3%, with traffic obviously down.

We have heard no credible reports that trends have improved in May so, with two thirds of the second quarter in the rear view mirror, and the economy showing signs of slowdown, there seems little reason to think that operating results will improve in Q2. A pickup could be in the cards, and the restaurant industry could lead the way, but not yet.

Roger Lipton





I’ve listened to a lot of conference calls lately describing Q4’18 and describing prospects for calendar ’19. It’s clear to all of us that restaurant operating costs are rising, labor being the most conspicuous line item. Higher expenses, sooner or later require price adjustments, in the hope of maintaining operating margins. The problem is that there continues to be intensive competition that precludes the necessary menu price adjustments. The results over the last couple of years have demonstrated that traffic decreases have predictably offset price increases and resultant revenues (same store sales) have mostly been flat. The following capsules, relating to company operated chains, provide a picture of current pricing, the resultant effect on profit margins, and what we can expect going forward. Our commentary, unless otherwise noted, is relative to the most recently reported quarter.

BJ’s Restaurants: Perhaps the most notable exception to the trends described below. Their menu has been revamped and upgraded, Prices are up 4.4% while maintaining traffic and store level operating margins. Wage expense will still be a challenge, up 5% in ’19, but ’19 is expected to be more of the same in terms of strong results on an absolute and a relative basis.

Brinker International: Managing Chili’s and Maggiano’s, prices were down 0.1% and up 0.5%, respectively. There have been major menu changes, especially at Chili’s with a strong focus on value, so transactions have been maintained. Unfortunately, there has been margin erosion at the restaurant level. It remains to be seen whether the aggressive value orientation will pay off over time, in terms of rebuilding margins. Menu pricing is expected to be up about 1.5% going forward.

Cheesecake Factory: Has been running about 3% price, which they expect to be the ongoing case. Resultant traffic has been roughly flat. Unfortunately, restaurant margins have been damaged, for the quarter and the year. Wages are expected to be up 6% going forward, especially in California, where pricing is also higher. There is no reason to expect restaurant margins to improve.

Cracker Barrel: Has been running about 3.7% price, traffic close to flat. Menu prices were increased 10% at Thanksgiving and Christmas. Pretax operating earnings were flat for the qtr and six months. Wages are expected to be up 3.3% plus higher training expense. Again, no reason to think that restaurant margins will expand.

Chipotle: Prices are running up 4.1%, with traffic up by about a point, menu prices to increase about 1.7% going forward. Wages are going up by 4-5% in ’19. A great number of moving parts here, still trying to bounce back from the health incidents over three years ago. Traffic is hardly better than it was then and margins have a long way to go.

Pollo Tropical: Owned by Fiesta Restaurant Group, had a price increase of 4.4%, as the brand is repositioned. Transactions were down 6.3%. Appears that adjusted EPS and EBITDA are stabilizing but a lot of moving parts here. Time will tell.

Taco Cabana: Owned by Fiesta Restaurant Group, had a price increase of a massive 9.6%, as the brand is repositioned. Transactions were down 4%. Once again, lots of moving parts and it will take time to see how this re-invention plays out.

Shake Shack: Pricing was up 2.6%, expected to move up another 1.5% in calendar ’19. Transactions were down over 1%, for a couple of years now. Store margins are coming down, not just from higher expenses but because lower volume stores are opening. Wages are expected to rise by about 5% in ’19, continuing the trend that has seen a 43% increase in minimum wage in NY since 2016, 20-30% in other key markets.

McDonald’s: While highly franchised, McDonald’s has thousands of company operated stores. US stores had a 4.7% price increase in ’18 and traffic was flat. Company operated US stores had a store level EBITDA of 17.5% in ’18, down 70 bp, so the price increase did not offset the higher expenses.

Red Robin: Still trying to re-invent themselves, with a heavy emphasis on value, menu prices were down 0.1% (Price was up 1%, discounting took it down), expected to be up 2%+ in ’19. Too many challenges here to use this one as a generalized indicator.

Starbucks: Pricing up 4%, traffic flat. Should look the same in ’19, though higher traffic is the hope. US operating margin was only up 3% on a  8% revenue increase, so came down materially on a  percentage basis. No reason to expect an increase in store level profits unless traffic increases materially.


With the exception of BJ’s, which is firing on virtually all the relevant cylinders, just about everybody else is “margin challenged”. Relative to menu pricing, the largest companies in QSR, represented here by McDonald’s and Starbucks, are raising prices about 4% annually. Cheesecake and Cracker Barrel, among the largest casual diners, are increasing prices in the 3-4% range annually, and their margins are down and flat respectively. Chains that are either sharply below, or sharply above these ranges, such as Chili’s and Red Robin, or Taco Cabana and Pollo Tropical, are going through their respective repositioning, and time will tell how they do.

In any event, one of our conclusions is that a 3-4% menu price increase is not enough, in the absence of higher traffic as well, to rebuild EBITDA “profit” margin at the store level, not when wages are going up by 5% which alone costs about 150 bp on the income statement. At the same time advertising, insurance, rents, and most of the rest of the 15 points of “other operating expenses” are trending up as well.  This is all you need to know as to why franchisees of major systems, McDonald’s, Jack in the Box, Tim Horton’s to name just a few that so far have gone public with their dissatisfaction, are asking for a larger voice.

Another conclusion is that every chain must be prepared to invent (if they are young) and reinvent (if mature) themselves in terms of the employee culture, the customer experience, the hospitality quotient, in essence: you must differentiate your commodity. Absent that, customers will feel no need to dine with you (Domino’s still delivers), or call Doordash (with a lower margin for you), or grab and go at no shortage of prepared meal purveyors.

Roger Lipton