Restaurants expect thinner wallets to hit sales
The nation’s wallets have been a bit lighter of late. In January, Congress and the president decided to end a two-year stimulus by returning the payroll tax to previous levels. Everybody suddenly had their take-home pay reduced by 2 percent.
That trim has clearly led to lower sales at restaurants, with many concepts reporting weak sales so far this year.
Speaking on CNBC recently, Subway founder Fred DeLuca said people he’s spoken with indicate the end of the tax holiday is having a 2 percent impact on sales and, “We’re seeing the same thing.”
Brinker International, the owner of Chili’s, lowered its sales expectations for the current quarter, citing a “softer sales environment” as guests “adjust to lower discretionary income.”
DineEquity, the owner of IHOP and Applebee’s, likewise is feeling the impact. “It’s clear that recent tax changes have had an impact on consumers’ discretionary spending,” said CEO Julia Stewart.
Other issues are likely affecting these chains’ sales: DeLuca acknowledged, for instance, that a lawsuit claiming Subway’s footlongs aren’t actually a foot long could have hurt.
But discretionary spending is the biggest indicator of restaurant sales. People with less money spend less, and consumers can be quick to cut out things they don’t need. That increase in the payroll tax translates into a $19 loss in discretionary income for a household with incomes of $50,000 or more. That’s about the same as one of those popular 2-for-$20 deals.
Consumers will adjust to the payroll tax. But the loss of that income will make a competitive industry that much more difficult.