Restaurant traffic returns to negative in Q2, reports Scoreboard
It’s starting to sound like a broken record: restaurant traffic officially returned to negative status in the second quarter of 2019 after a brief and lackluster push into positive territory since Q3 of 2018. Restaurant analytics firm TDn2k reported negative 3 percent traffic for the three months ending in July, while The NPD Group reported a 0.4 percent decline in traffic during Q2 overall.
The big same-store sales numbers ticked up on price increases and savvy marketing that pushed diners to spend a little more on expensive items. But while comps are propped up by such tactics, they don’t have staying power, intent to return lags right in line with traffic losses.
If it sounds familiar, well, it’s the same refrain we’ve seen since the recent highs of 2015 and the reasons, likewise, are the same. There are too many restaurants and more every day, spreading diner dollars thinner and thinner.
But still, the franchise industry plugs along in the market. The RIFC 50 Index, an index comprised of franchised brands, had another banner quarter. In Q2, the index surged by 7.8 percent, nearly twice the growth of the S&P 500.
It’s still music to investor ears, but it’s highly engineered music. Like listening to Daft Punk when you really just want to hear some Fleetwood Mac. And it has to stop at some point.
According to an ongoing quarterly survey of CFOs by Duke University, that music could stop soon. Nearly half (48 percent) of financial leaders believe there will be a recession by the second quarter of 2020, and 69 percent think it will happen by the end of 2020. The same survey shows optimism fluctuates, but in general has been trending downward since Q2 of 2018.
And McKinsey revisited a 2010 article recently about what to watch for to predict a recession. Namely, the predictors were loose lending standards, unusually high leverage and M&A transactions without value.
That’s two big checks for the former in a restaurant industry that is awash with cash from banks and alternative capital sources and several historic or near-historic leverage levels.
As for all those M&A transactions, time will tell which of those are winners, but recently plenty of dogs have found new homes.