Restaurant sales continue 15-month growth streak
The good news for the restaurant industry is that sales growth remained positive in April. The industry saw a 15-month streak of year-over-year sales improvement. The last time industry sales growth was negative was in February 2021, when restaurants hit a new high in the number of COVID cases at the end of 2020. But the bad news is that the rate growth slowed considerably, to 5.3% in April. lowest sales growth over the same period. Further weakening is expected in the coming months as the industry continues to overcome increasingly difficult selling hurdles.
The most concerning news for restaurants comes in the form of the steady erosion of customer numbers in recent months. Traffic growth declined by 2.7% in April, which represents a slowdown of 1 percentage point compared to the growth rate in March and is the second consecutive month in which traffic growth has been negative from one year to the next.
In April, restaurants were able to deliver a strong service experience to their customers. Net sentiment of service* improved by 7 percentage points year-over-year during the month. In fact, this month posted the highest net service sentiment since the start of 2021. This is good news for an industry that has been heavily challenged by staffing challenges, which have hampered execution since last spring.
Net food sentiment was down slightly year-on-year (down 0.7 percentage points), but mainly due to a difficult comparison to last year. In fact, April 2022 recorded the second highest customer sentiment for restaurant food since the start of 2021; the only month with higher sentiment was April of last year. However, net food sentiment became more positive by 1.2 percentage points in April 2022 compared to the previous month.
Financial metrics are same-store metrics and reported on a one-year comparison, unless otherwise noted.
*Net sentiment is the percentage of positive mentions minus the percentage of negative mentions in online restaurant reviews.
Customer sentiment of value is negative for off-site offerings, much lower than for on-site restaurants
It’s no secret that prices across the economy are rising at an exorbitant rate and wiping out gains made by consumers through rapid wage increases. Restaurants have been no exception, and the biggest concern is that the extraordinary hikes in menu prices are far from over. According to a recent survey by Black Box Intelligence™, 45% of restaurateurs estimated that their menu prices would be at least 7% higher by the end of 2022 compared to their average level at the end of 2021. 27 other % of businesses expect their menu prices to increase between 5% and 7% by the end of the year.
With prices rising at such an accelerated rate, consumers are no doubt feeling the pressure and starting to make purchasing decisions based on the associated impact on their budget. Throughout the pandemic, the sense of value has diminished in its relative importance as customers have focused on other areas of the restaurant experience as key drivers of their dining preferences. But that should change soon.
One of the interesting new dynamics around customers’ sense of value is occurring around off-premises restaurants, which has increased its relative importance for most restaurants as its share of total restaurant sales has held steady at levels higher than before COVID. Net sense of value is much lower for offsite offerings than for restaurants, meaning that overall net sense of value scores are reduced by the greater offsite activity.
For full-service restaurants, the sense of net worth is 12% for dining out. For those purchased for offsite consumption, the net sense of worth drops to -37%, a dramatic fall of almost 50 percentage points. For limited-service brands, value sentiment was negative even for restaurants in Q1 2022 at -7%, but customers were much more negative when assessing the value they were getting through off-premises channels. Off-premises net value sentiment was -32%, a significant drop of 25 percentage points from the restaurant.
What are some of the factors driving the overwhelmingly negative sense of value attributed to dining in off-premises restaurants? In the case of delivery, the presence of delivery charges may be the cause of some of this erosion of the sense of value. These meals would become more expensive once delivered than the equivalent recovered or consumed at the restaurant. But more than anything, it’s the fact that food sentiment is also much lower for off-site offerings that pushes the value scores down. Customers frequently complain of cold food, incorrect orders, and long wait times when ordering through offsite channels. They are aware that they are paying much more for these meals than a few months ago and are quick to report when the meals they receive do not meet their expectations. With higher prices, expectations also tend to rise. Value is more than just price; it’s relative to what you get for the money you pay. In the case of the outdoors, what you get may not be as good as what you get eating in a restaurant and service experience, and expectations may simply be higher considering the money spent on all channels.
Regional and market performance
Customers in Orlando, Florida showed the most positive sentiment for restaurant chains across several key attributes. In April, this metropolitan area topped the list based on the most positive food, ambiance, and sense of value. Raleigh, North Carolina was the most positive market for service and intent to return, while Houston was the designated market area with the strongest drink sentiment.
Beyond Orlando, the major markets that had the highest net sentiment for restaurant food during the month were Raleigh, Tampa, Florida, Indianapolis and Houston. The top markets for the most positive service sentiment behind Raleigh were Orlando, Tampa, Houston and Charlotte, North Carolina.
On the other hand, major West Coast markets had the lowest sentiment scores for most dining experience attributes. San Francisco had the lowest net sentiment for food, service, and intention to return, while Sacramento was at the bottom of the list for ambiance. Seattle was the DMA with the lowest drinking sentiment.
California, in particular, posted lower net sentiment scores than other regions of the country. In fact, the top three DMAs with the lowest net restaurant sentiment are in San Francisco, Sacramento, and Los Angeles.
The Restaurant Guest Satisfaction Snapshot™ (RGSS) is produced using data from Black Box Guest Intelligence™. Guest Intelligence tracks over 190 brands to assess guest satisfaction and is the only online tool that integrates with operational performance data to validate the impact on financial performance. The dataset focuses on six key attributes of the restaurant industry experience: food, service, ambience, drink, value, and intent to return.
The RGSS algorithm determines the top ranked brands based on sentiment. Brands included in this monthly snapshot must have a total of at least 250 mentions for the month. Restaurants must also have a minimum number of units to be eligible. DMA ratings only consider the 25 largest areas.