Sunday, August 21, 2016

What's to blame for slower restaurant sales? Cheap food

Crain's Chicago Business reports:
As prices for beef, chicken, eggs, milk and cheese go down at the grocery store, people cook at home more and eat out less.

That's bad news for companies like McDonald's, which stumbled in the second quarter after two straight quarters of surpassing expectations, disappointing investors looking for more robust results under CEO Steve Easterbrook's turnaround plan.

The world's largest burger chain had plenty of company. Of the 25 largest restaurant chains in the country, just one—Domino's Pizza—reported a same-store sales increase of 5 percent or better in the most recent fiscal quarter, the worst showing so far this decade, says Mark Kalinowski, a New York-based restaurant analyst at Nomura.

“(For) chain restaurants, it was a weak quarter, no doubt about it,” Kalinowski says. The primary reason: Prices at restaurants are rising, while prices at grocery stores are falling, causing some consumers to skip the Big Mac to grill a burger at home.

Six of the largest chains—Taco Bell, Burger King, Applebee's, Chipotle, Chili's and Buffalo Wild Wings—reported negative same-store sales figures for the quarter. Oak Brook-based McDonald's fared slightly better, reporting that same-store sales rose 1.8 percent in the U.S. in the second quarter. But that was far below the 3.2 percent increase expected by analysts and the 5.4 percent rise it reported the previous quarter.

“Compared with 12 months ago, if you're shopping at a grocery store and cooking at home, you're giving yourself a (bigger) discount, on average, versus eating at a restaurant,” Kalinowski says. And consumers, particularly low-income and middle-class families on tight budgets, tend to notice even small changes in prices and act accordingly. That has created what restaurant industry executives call a “challenging restaurant environment.”

Wendy's CEO Tedd Penegor said during an Aug. 10 earnings call that cheap grocery prices are hurting his burger chain's sales, which inched up a paltry 0.4 percent on a same-store basis in the most recent quarter. “It's gotten a lot cheaper, relatively speaking, to get fresh beef at your local butcher and go home and grill it. . . .The continued gap in the cost of eating at home and dining out is at the widest point since the recession.”
Competition is a great thing for consumers. Too bad ObamaCare is cartelizing the health insurance industry preventing lower prices.