Casual Dining – Silver Lining?

The initial run up in retail gas prices in 2005 led to the precipitous decline in casual dining same-store sales and traffic growth trends. As gas prices increased at an accelerated rate in early to mid 2008, casual dining demand dropped at an accelerated pace as well. Casual dining operators posted their worst traffic declines in the July through October 2008 timeframe since at least 2000 with the October number falling 8.2%. And, based on recent comments from casual dining companies, we are expecting more of the same in November.

That being said, gas prices have been declining and are now down nearly 60% from the peak levels experienced in July, down 40% YOY and have moved below 2005 levels. Although gas prices account for only one factor among many (unemployment, declining house prices, etc.) that have impacted restaurant demand, at some point, these lower gas prices will help to stabilize and reverse traffic trends just as they played a major role in pulling down demand on their upward climb. In fact, SixthManResearch.com estimates that every $0.01 change in the retail price of gas impacts annual consumer spending by $1.5 billion. Based on the current U.S. average retail price of regular gas of $1.70 per gallon and the 2007 average price of $2.81 per gallon, this equates to a $1.11 change or an additional $166.5 billion of annualized consumer spending injected into the economy (or about 1% of consumer spending in 2009), not an insignificant amount.

The charts below highlight the inverse relationship between retail gas prices and casual dining same-store sales growth and traffic trends. If gas prices continue to fall, restaurant operators should begin to see some relief from a demand perspective.

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