Through the second quarter of 2019, the restaurant industry continued to demonstrate solid performance, weathering shifting dining habits, increasing labor costs and continually fluctuating commodity prices. Same-store sales rose a healthy 1.8% across the industry, thanks in part to strong consumer spending in restaurants.
But savvy restaurants didn’t rely solely on strong consumer spending – they continued to implement strategies which demonstrated a positive impact in 2018 and early 2019. Whether through limited time offers (LTOs), a strengthened digital presence, in-house delivery capabilities or menu price increases, restaurants are recognizing that a tailored approach to drawing in customers is the key to withstanding industry challenges.
Same-Store Sales Continue to Climb
The Fast Casual segment enjoyed the highest increase in same-store sales through Q2, showing a lift of 2.8%, with standouts Wingstop and Chipotle attributing strong gains to an increased focus on digital and delivery services. Casual and Quick Serve also demonstrated solid performance, with 2.0% and 1.5% gains, respectively, through Q2. The pizza segment, excluding Papa John’s, experienced a same-store sales hike of 1.8%. Meanwhile, the Upscale Casual segment showed the most modest same-store sales growth, with a 1.2% gain across the segment.
Restaurants Combat Fluctuating Commodities
Though commodity pricing was largely favorable through the second quarter of 2019, fluctuation in the price of beef (+5.5% through Q2) was enough to cause some restaurants to install strategic menu price increases. In contrast, egg prices declined -42.3% through the quarter, providing a lift for those with breakfast offerings. Many restaurants, however, have been able to subdue the impact of fluctuating commodities by establishing lock-in pricing with their vendors, promising them consistent pricing over a 6- to 12-month period on average.
What’s Next for Restaurants: Q3 and Beyond
Looking at the balance of 2019 and beyond, it’s likely that restaurants will continue to grapple with many of the same problems that the industry has faced for years. With labor costs set to keep climbing, consumer dining habits continuing to evolve and new entrants disrupting restaurants’ status quo, it will be tempting for restaurants to play follow-the-leader – mimicking the strategies taken by industry titans to improve their same-store sales.
But restaurants should keep in mind that there isn’t a one-size-fits-all approach to doing business, and what worked for some brands may not work for others. A realistic view of the business’s strengths, weaknesses, and – perhaps most importantly – the wants and needs of their customers, is vital to consider with any new strategy.
This article originally appeared in BDO USA, LLP’s Selections Blog (September 16, 2019). Copyright © 2019 BDO USA, LLP. All rights reserved. www.bdo.com
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