A Snapshot of Casual Dining's Q1 2024: Challenges, Improvements, and the Road Ahead
1Q24 brought both challenges and glimmers of hope for the casual dining industry. The year started somberly, with January sales plunging -5.3% compared to the prior year. However, as the quarter unfolded, the tide began to turn. February saw a slight uptick, with sales declining at a less severe rate of -1.7%. By March, the industry showed remarkable resilience, narrowing the year-over-year sales decline to just -0.5%.
That said, the two-year average sales growth also slowed during the quarter; the deceleration was less drastic than the monthly year-over-year figures might suggest. January's +5.7% two-year growth moderated to a still-respectable +1.6% by March, hinting at a longer-term positive trend beneath the surface.
Guest traffic, while remaining negative throughout 1Q24, continues to be a concern. January saw a steep -7.0% drop in traffic compared to the previous year, but by March, that figure had been cut by more than half to a -3.4% decline. The two-year average traffic comparison followed a similar pattern, starting at -2.0% in January and ending at -3.9% in March.
Resilient Appetites: How Restaurant Sales Continue to Thrive Amid Economic Fluctuations
The retail sales data presents an encouraging view of the restaurant industry's performance over recent months, particularly in March. According to the preliminary figures from the U.S. Census Bureau, sales at eating and drinking places reached $93.7 billion in March on a seasonally adjusted basis. This marked a 0.4% increase from February, contributing to a second consecutive month of growth. However, even with these recent gains, sales in March still fell slightly short of the seasonally-adjusted peak seen in November, which was $94.2 billion. The industry experienced a downturn in December and January before picking up again over the past two months. In March 2024, total sales in this sector rose by 6.5%, significantly higher than the 3.6% increase in consumer spending seen in non-restaurant retail sectors during the same period. When adjusted for menu price inflation, the actual increase in sales for eating and drinking places over the past 12 months is a more modest 2.3%. Nonetheless, the growth in restaurant sales outpaces other retail sectors, highlighting a more robust recovery and consumer preference for dining out.
Restaurant Price Hikes Slow Down But Still Outpace Grocery Stores
The latest U.S. Bureau of Labor Statistics data reveals that the Consumer Price Index (CPI) rose faster than anticipated last month. Still, restaurants aren't the primary culprit this time around. While prices at restaurants and other food service establishments did increase by 0.3% in March 2024, this was slightly slower than the overall 0.4% increase across all items examined by the bureau. Interestingly, restaurant prices still outpaced grocery store prices, which remained flat for the month. Over the past year, food-away-from-home prices surged by 4.2%, compared to a modest 1.2% increase at retail locations. The pricing issue has become increasingly complex for restaurants, as rising costs have led to concerns among consumers, particularly those in lower-income brackets. As a result, some diners have cut back on eating out at popular chains like McDonald's and Olive Garden. At the same time, some surveys suggest teenagers have reduced their overall spending due to inflation. These consumer adjustments have led to traffic declines and slower same-store sales growth at publicly traded restaurant chains, especially in the latter half of 2023. However, there is hope on the horizon, as restaurants are expected to moderate their price increases this year due to easing labor and food costs, except for California. Full-service restaurants have seen a 3.2% price increase over the past year, while limited-service establishments continue to grapple with higher prices, raising them by 0.3% last month and 5% over the past 12 months. As the restaurant industry navigates this challenging landscape, it remains crucial for businesses to strike a balance between managing costs and maintaining customer loyalty. By carefully monitoring consumer sentiment and adjusting pricing strategies accordingly, restaurants can weather the inflationary storm and emerge stronger on the other side.
