A waitress delivers sushi orders at Masa Hibachi Steakhouse & Sushi in Silver Spring, Maryland.
Bill O’Leary | The Washington Post | Getty Images
Warmer weather usually boosts restaurant sales, but diners may be restrained for the second summer in a row as inflation weighs on consumers’ minds — and wallets.
“I think operators still have hopes for a good summer return in foot traffic and sales…but I think the consumer side is hesitant,” said Huy Do, research and insights manager at market research firm Datassential.
Last year, consumers withdrew their restaurant visits in May, June and July for fear of inflation. In addition to higher restaurant bills, diners also paid more at the gas pump and in supermarkets.
Salad chain Sweet green said sales slowed after Memorial Day, blaming the trend on a range of factors, including erratic returns to offices and rising summer travel. Chipotle told investors sales slowed from late May, citing the broader economy, new workforce and a return to normal seasonal fluctuations in college towns. And Shake Shack said sales in June were disappointing as lower-income consumers came less often.
Restaurant sales increased in August, which Black Box Intelligence attributed to higher consumer confidence as gas prices fell.
Inflation may ease this year, but prices are still rising, adding to concerns about regional bank failures and a possible recession before year-end. U.S. consumer confidence fell to a six-month low in May, fueled by concerns over the debt limit impasse, according to a University of Michigan consumer research.
About a third of consumers surveyed by Datassential plan to eat out less in the coming month, and about half plan to maintain their current restaurant spending habits.
“Inflation and the economy are still more important to consumers in terms of their financial planning than any kind of enjoyment or anticipation of travel,” said Do.
Despite diners’ caution, restaurants are optimistic they will still see a summer boom. Nearly half of operators surveyed by Datassential expect increased revenue or increased traffic this summer season.
The National Restaurant Association has released a “cautiously optimistic” seasonal forecast, according to Hudson Riehle, the trade group’s senior vice president of research.
Bars and eateries will more than add half a million seasonal jobs this summer — assuming lawmakers raise the debt limit, the NRA predicts. If the hospitality industry meets those expectations, it would be the strongest summer for hiring since 2017.
“The summer of 2023 is clearly going to be the most normal summer job market since 2019,” Riehle told CNBC.
Summer typically ushers in a surge of seasonal restaurant jobs to meet increased demand, particularly in the Northeast and tourist destinations.
Travel downwind
The travel industry expects strong demand this year, which could boost sales for some restaurants. Half of Americans plan to travel and stay in paid accommodation this summer, up from 46% last year, according to a Deloitte survey.
Riehle estimates that about a quarter of every dollar spent in restaurants is linked to travel and tourism. Across all restaurant segments, fast food and gourmet restaurants benefit the most from tourism, according to Datassential’s Do. Casual dining, which is already struggling to attract diners, is the least likely to see travel sales increase.
But even rosy travel prospects won’t necessarily boost the U.S. restaurant industry. Deloitte’s research also found that more Americans are planning to travel internationally this summer — though international tourists visiting the US may help make up that difference.
In addition, only 53% of respondents plan to take at least one road trip, up from nearly two-thirds last year. That’s bad news for roadside fast food restaurants that rely on feeding hungry travelers.
The drive for value
Heading into summer, deals and promotions usually slow down because operators don’t need them to attract customers. But diners are starting to push back higher menu prices and are embracing ways to pay less for their meals.
According to market research firm Circana, restaurant traffic from consumers taking advantage of deals increased 8% in the first quarter compared to the same period last year.
At the same time, most restaurants’ profit margins are improving, so some are turning to value meals and other deals to attract customers.
For example, fast-casual chain Noodles & Co. told investors earlier in May that its customers are resisting the higher prices, especially after the last 5% increase in February. At the same time, the cost of ingredients for dishes like BBQ Chicken Mac has fallen faster than executives predicted, the company said.
So, Noodles & Co. intends to make deals. It brought back its popular 7 for $7 menu and introduced a $10 mac and cheese meal.
“Given consumer confidence today, some of the data we’re seeing, we think that should be a little more value-oriented,” CEO Dave Boennighausen told CNBC.