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Conclusion: Knapp Track comparable restaurant sales trends in December indicate that the casual dining recovery has slowed down somewhat.  For the wider casual dining space, the fragility of the underlying economy warrants caution.

Knapp Track preliminary results for December suggest that the casual dining recovery seen in the third quarter has slowed over the past couple of months.  December comparable restaurant sales of -0.8% signifies the first year-over-year decline in results since June.  On a two year basis, comparable restaurant sales sequentially declined by 55 basis points.  Adjusting for bad weather, December's comparable restaurant sales number would have been +0.2%, which would imply a 5 basis point decline in two-year average trends excluding the impact of weather. Q410 saw a sequential slowdown in comparable restaurant sales to +0.5% from +0.8% in 3Q10.  On a two-year average basis, however, quarterly comparable restaurant sales trends accelerated by almost 90 basis points.

Comparable guest counts in the casual dining space saw a sequential decline from a revised -1.6% result in November, according to the most recent Knapp Track report.  December’s preliminary decline of -2.9% shows that the “recovery” is far from secure, especially as companies look to pare back their use of discounting as a driver of traffic.  On a two-year basis, December’s result implies a sequential deceleration of 95 basis points. 

In this month’s report, Malcolm Knapp highlighted several interesting factors that he believes are key to consumer behavior.  Firstly, the effects of the financial crisis persist with mortgage defaults and high levels of unemployment burdening attitudes.  Another interesting point is that increases in consumer confidence are consistently due to a view that “things will be better in 6 months” from the date of the report.  Expectations have dramatically outperformed current views. 

Howard Penney

Managing Director