Casual Dining – November Trends

Malcolm Knapp reported last Friday that casual dining same-store sales declined 4.6% in November with traffic down 4.4%.  These were surprisingly strong numbers with comparable sales growth improving nearly 180 bps sequentially from October on a 2-year average basis and traffic getting better by more than 150 bps (helps to explain the group’s 6.2% move over the last two days and moving higher again today). 

Making these results even stronger is the fact that November was the first month in 2009 when both average check and traffic 2-year average trends improved on sequential basis.  On a 1-year basis, traffic has gradually gotten less bad in 2009 with November coming in -4.4% versus -10.5% in December 2008.  At the same time, average check has weakened and even turned negative in May and has remained negative through November.  Seven consecutive months of average check declines is significant as the industry had not reported one month of negative average check growth prior to May 2009 going back through 2000.  Lower average checks are a sign of increased industry discounting.

Malcolm Knapp pointed out that although traffic growth continued to outperform same-store sales growth by 0.2% in November, it was the first month since April when not all of the weeks of the month followed this trend and it was also the lowest level of outperformance over that same timeframe.  To that end, Malcolm Knapp stated, “The level of discounting fell in November as wholesale food costs increased 1.29% for the month vs. the prior month, October.”  His statement only increases my conviction that restaurant operators cannot afford to continue to discount to the same extend they have in 2009 as food costs move higher in 2010.  That being said, I thought this lower level of discounting would translate into bigger traffic losses.  This was not the case in November.  As I already said, both average check and traffic ticked up in November on a 2-year average basis.  We will have to wait and see if the November trends are sustainable.  For reference, DRI said last week that industry trends continued to get better in December but would not clarify whether the improvement was on a 2-year basis or a 1-year basis (the latter would be less impressive).