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While the level of discounting in casual dining continues to decline, growth in guest counts remains depressed. 

Malcolm Knapp reported May same-store sales and traffic results of -0.9% and -3.9%, respectively.  For same-store sales, this constitutes a two-year average number of -3.8%, which is down sequentially from the -3.5% (revised) two-year average decline in April.  The traffic number represents a two-year average of -4.9%, a sequential improvement of 10 bps from April’s two-year average traffic number.  During earnings calls pertaining to the first quarter, management teams had been mentioning an improvement in traffic numbers in April that did not manifest in the Knapp track numbers.  May shows a slight improvement in two-year traffic trends but, on a year-over-year basis, traffic trends are indicating softness.   

In terms of the general consumer environment, Knapp signals the ongoing financial crisis as the primary cause of weakness in sales.  This is reflected, according to Knapp, by increasing mortgage defaults and continuing high levels of unemployment and underemployment.   Knapp also cites a recent Wall Street/NBC News poll that showed that 62% of adults believe the country is on the wrong track, the highest level since before the 2008 elections. 

The chart below shows that the discounting level is abating; the unusual excess of guest counts over same-store sales indicated a discounting environment.  The level of discounting seen for a large part of 2009 seems over with comparable sales exceeding comparable guest counts by 3% (the largest margin since May 2008) in May.  Knapp states that value propositions with “meaningful products for the majority of concepts will continue to be very important”.  If macro headwinds persist, it seems it will be difficult for casual dining companies to meaningfully elevate traffic trends without further discounting.

KNAPP – UGLY TRAFFIC NUMBERS - knapp discounting

Howard Penney

Managing Director