Eating places put up sturdy summer time gross sales as shoppers worry inflation

A waitress delivers sushi orders at the Masa Hibachi Steakhouse & Sushi in Silver Spring, Maryland.

Bill O’Leary | The Washington Post | Getty Images

Warmer weather usually boosts restaurant sales, but diners may be holding back for the second summer in a row as inflation weighs on consumers’ heads and wallets.

“I think operators are still hoping for a good summer boon in terms of foot traffic and sales… but I think on the consumer side, they’re more hesitant,” said Huy Do, research and insights manager at market research firm Datassential.

Last year, consumers withdrew from dining out in May, June and July on inflation concerns. In addition to higher restaurant bills, guests also paid more at the pump and in grocery stores.

lettuce chain sweet green said sales slowed after Memorial Day, attributing the trend to a number of factors including erratic returns to offices and rising summer travel. chipotle told investors that sales slowed from late May, citing the broader economy, the new workforce and a return to normal seasonality in college towns. And Shake Shack said June sales were disappointing as lower-income consumers visited less frequently.

Restaurant sales fell in August, which Black Box Intelligence attributed to higher consumer confidence due to falling gas prices.

Inflation may be easing this year, but prices are still rising, adding to concerns about regional bank failures and a possible recession before the year is out. According to a University of Michigan consumer survey, US consumer sentiment fell to a six-month low in May amid concerns over the debt ceiling standoff.

About a third of consumers surveyed by Datassential plan to eat out less over the next month, and about half plan to maintain their current restaurant spending habits.

“Inflation and the economy are still more important to consumers in their financial planning than the fun or excitement of travel,” Do said.

Despite diners’ caution, restaurants are optimistic they’ll still see a summer boom. Almost half of the operators surveyed by Datassential expect higher revenue or more traffic this summer season.

According to Hudson Riehle, the trade group’s senior vice president of research, the National Restaurant Association issued a “cautiously optimistic” seasonal forecast.

Bars and restaurants will add more than half a million seasonal jobs this summer – assuming lawmakers raise the debt limit, the NRA predicts. If the hospitality industry lives up to those expectations, it would be the strongest hiring summer since 2017.

“The summer of 2023 is obviously going to be the most normal summer job market since 2019,” Riehle told CNBC.

Summer typically brings a surge of seasonal restaurant jobs to meet higher demand, particularly in the Northeast and tourist destinations.

travel tailwind

The travel industry is anticipating strong demand this year, which could boost sales for some restaurants. According to a Deloitte poll, half of Americans plan to travel and stay in paid accommodation this summer, up from 46% last year.

Roughly a quarter of every dollar spent in restaurants goes to travel and tourism, according to Riehle estimates. Across all restaurant segments, fast food and fine-dining restaurants tend to benefit the most from tourism, Datassential’s Do said. Casual dining, which is already struggling to attract eaters, is likely to see the least increase in revenue from travel.

But even rosy travel prospects won’t necessarily boost the US restaurant industry. The Deloitte poll also found that more Americans are planning to travel abroad this summer — although international tourists visiting the US could help bridge the gap.

Additionally, only 53% of respondents plan to take at least one road trip, up from almost two-thirds last year. That’s bad news for roadside fast-food restaurants that rely on feeding hungry travelers.

The urge for value

At the beginning of summer, deals and promotions usually slow down as operators don’t need them to attract customers. But guests are increasingly reluctant to pay higher menu prices and are looking for ways to pay less for their meals.

Restaurant traffic from consumers who benefited from offers increased 8% in the first quarter compared to the year-ago period, according to market research firm Circana.

At the same time, most restaurants’ profit margins are improving, leading some to turn to inexpensive meals and other offerings to attract customers.

For example fast-casual chain Noodles & Co. In early May, the company told investors that its customers are reluctant to accept the higher prices, especially after the recent 5% price increase in February. At the same time, the cost of ingredients for dishes like BBQ Chicken Mac has fallen faster than executives predicted, the company said.

Therefore, Noodles & Co. plans to get involved in deals. It brought back its popular $7-for-7 menu and introduced a $10 Mac and Cheese menu.

“With consumer sentiment today and some of the data we’re seeing, we think it needs to be a little more value-driven,” CEO Dave Boennighausen told CNBC.

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