5 reasons why the restaurant industry is doing well

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This article is part of the On the Margin blog.

The restaurant industry started the year on a weak note, at least according to sales indices. Black Box Intelligence said comparable store sales fell 0.8% for the month. According to MillerPulse, same-store sales increased 1%. Both were the lowest numbers in years.

But the two figures mask what was, in fact, a good month for the industry and what could be the start of a profitable year. Here’s why:

The two-year trend is still strong. MillerPulse and Black Box were comparing themselves to a January 2015 which was the strongest month in years thanks to a series of silly good weather. So of course the January sales weren’t as good as the year before, they were still pretty good on a two-year basis. MillerPulse’s two-year comparable store sales trend of 6.3% was the strongest for this index in two years. For Black Box, the two-year trend is 5.3%. Two-year trend figures exclude one-time events such as weather that may influence single-year same-store sales.

Overall sales were stronger. According to recent federal data, sales of food services and drinking places rose 6.1% in January to $53.5 billion. Federal data tracks all sales, rather than same-store sales, and therefore may account for increased sales of new units as well as independents. Overall retail sales excluding auto sales, by comparison, rose only 2.5%. Sales in grocery stores, 2.3%.

Restaurants are hiring. This is the best indication of an industry still expanding. Restaurant owners hired 46,700 workers in January, nearly one in three jobs created by the economy during the month. Over the past year, the industry has created over 380,000 jobs. What’s the point of adding workers if you don’t think your business will need any additional labor?

Gas prices are still ridiculously low. Gas prices averaged $1.70 a gallon on Tuesday, according to AAA. Although that’s a bit higher than a week ago, it’s still 60 cents per gallon cheaper than a year ago. Gasoline prices are expected to be low for some time as long as there is an oil glut, which will put money in the pockets of more consumers. When consumers make more money, they really want to spend it on dining out.

Food prices are falling. These extra sales come as beef costs finally join other commodities in deflating. Lower prices for beef, pork and chicken are expected to make the industry more profitable in 2016. Indeed, Texas Roadhouse executives said during the company’s earnings call on Monday that they will expect higher margins this year thanks to increased sales and lower food costs.

None of this is to say there aren’t challenges in the industry. But barring a major calamity, it looks like it could be the best year for restaurants since the Great Recession began.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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