Restaurant And Hospitality News – November 14, 2016
By Christine Kern, contributing writer
In news this week, the election took center stage, as both projections for restaurant sales and the president-elect’s goals could have widespread repercussions for the restaurant and hospitality industry.
October Is Eighth Consecutive Month Of Declining Restaurant Sales
The outlook for restaurant job growth is looking bleak as October sees the eighth consecutive month of declining sales, according to the Nation’s Restaurant News. While year-over-year same-store sales and traffic growth showed slight improvement over September figures, October’s results are feeding concerns as the industry limps through the worst year since the end of the recession. The TDn2K Restaurant Industry Snapshot provided this data based on weekly sales from nearly 26,000 restaurant units and more than 130 brands representing a total of $65 billion dollars in annual revenue.
“Since the beginning of 2015, same-store traffic growth has trended down at an increasing rate,” said Victor Fernandez, executive director of insights and knowledge for TDn2K. “Traffic growth year-to-date has been -3.0 percent, a very troubling scenario compared with the -0.8 percent reported for all of 2015.”
While same-store sales traffic has been decreasing, the rate at which the average guest check is increasing has experienced relative stability, remaining virtually unchanged at 2.5 percent for October. According to Joel Naroff, president of Naroff Economic Advisors and TDn2K economist, “Economic activity is decent and may be accelerating. The economy expanded in the third quarter by 2.9 percent, the strongest in two years. It is possible fourth quarter growth may exceed that. The October jobs reported provided the first clear indication that the tight labor markets are finally yielding higher wages. With household incomes growing faster, consumer spending should improve.”
And the election results could have an impact on restaurant sales, though Naroff says that Donald Trump’s win “will likely have little economic impact before next summer, but the probability that the federal minimum wage will be increased has diminished sharply.”
The winners right now are quick service, upscale casual, and fine dining, according to Fernandez. He explained, “Quick service, upscale casual and family dining represent opposite ends of the spectrum in terms of lowest and highest average guest checks. This suggests that consumers are favoring chain restaurants for inexpensive, convenience-driven and on-the-go dining…On the other end of the spectrum, higher-end experience-based dining is also strong for chains. Mid-scale spending is where they are having the most trouble.”
In fact, casual dining – particularly in the bar and grill sub-segment – were among the worst performing segments for October. And as restaurant sales growth slows, so does job creation by restaurant companies. For the first time in over three years, job creation has increased by less than 1.0 percent over the past two months.
How The Elections Will Affect The Restaurant and Hospitality Industries
With Donald Trump’s success in his bid for the presidency, the outlook for the restaurant and hospitality industry might have become just a bit brighter in the long run, according to The Nation’s Restaurant News. Although voters in four states approved ballot initiatives to raise the minimum wage to $12 per hour by 2020 in Arizona, Colorado and Maine and to $13.50 per hour by 2020 in Washington State, a Trump win makes the increase of the federal minimum wage less likely.
In a statement, Bill Phelps, co-founder and CEO of Wetzel’s Pretzels, said raising the minimum wage is good for the bottom line, stating: “We’re encouraged by these state raises, and look forward to continued growth for our business and the economy with future state and federal raises,” he said.
Gregg Majewski, a Jimmy John’s franchisee with units in Ohio and Alabama and several other concepts, was optimistic on Twitter, predicting a Trump win would result in lower health care costs and relax salary requirements. In a tweet, Majewski said that minimum wage rates will still see a boost, but at a fair rate.
In a report, Wall Street analyst David Tarantino, senior research analyst with Baird Equity Research, said the “uncertain and highly combative election cycle” has been one of the main factors weighing on consumer spending in restaurants over the past seven months.
But, he wrote on Monday when a Clinton presidency seemed certain, “With the potential for some of the negative sentiment to begin to abate following Tuesday’s election, we will be looking closely for any signs that underlying demand is starting to return.”
Trump’s positions on two crucial issues for the industry – minimum wage and overtime regulations – could have a significant impact on its future. While Trump has taken various stands regarding minimum wage across the span of the campaign, he has settled on a $10 hourly federal minimum wage, while allowing individual states to set higher rates. Trump will not likely pursue raising minimum wage as a priority, giving restaurant owners a breather.
When it comes to overtime regulations, Trump said he would like to see “a delay or carve out” for small businesses to give them some relief from the new regulations. If the courts do not halt the implementation of the new regulations on December 1, then the Trump administration will be challenged with rolling back the regulation after employees have already adjusted to the new threshold.
And of course Trump has made the repeal of Obamacare number 23 on his agenda for his first 100 days, planning to work with lawmakers to replace it and “implement reforms that follow free market principles.” While he has not proposed any specific plans, it is clear that he wants to see an end to the Affordable Care Act as it presently exists. Changes to mandated healthcare would also relieve some of the burden on restaurant owners.