O’Charley’s said at an investor conference yesterday that based on the casual dining industry numbers it is seeing, August was the worst sales period in 30 years. This statement reaffirms our view that the industry has not yet entered a period of stabilization, but instead continues to deteriorate at an accelerated pace. Management went on to say it would expect to see casual dining operators raise prices more aggressively than normal (up 3%-4% or more) in an effort to protect margins. The company said this is in line with Darden’s comments that it expects to increase FY09 prices at the higher end of its historical 2%-3% range versus its more typical 2.5% increase.
The primary driver of recent same-store sales weakness for casual dining restaurants has been negative traffic. In August, traffic declined 6.0% after falling 6.2% in July so although I am encouraged to hear O’Charley’s is focused on its margins and not just offering promotions across the board, I do not know if aggressive pricing is the answer to deteriorating traffic trends.
The primary driver of recent same-store sales weakness for casual dining restaurants has been negative traffic. In August, traffic declined 6.0% after falling 6.2% in July so although I am encouraged to hear O’Charley’s is focused on its margins and not just offering promotions across the board, I do not know if aggressive pricing is the answer to deteriorating traffic trends.