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 hold back for the second straight summer as inflation weighs on consumers’ minds — and wallets.
“I think operators are still hopeful for a good summer boon in foot traffic and sales … but I think on the consumer side, they’re more hesitant,” said Huy Do, research and insights manager at market research firm Datassential.
Last year, consumers pulled back on their restaurant visits in May, June and July amid inflation concerns. In addition to higher restaurant bills, diners were also paying more at the gas pump and in grocery stores.
Salad chain Sweetgreen said its sales slowed after Memorial Day and blamed the trend on a range of factors, including erratic returns to offices and surging summer travel. Chipotle told investors that its sales decelerated starting in late May, citing the broader economy, its new workforce and a return to normal seasonal fluctuations in college towns. And Shake Shack said its June sales disappointed as lower-income consumers visited less frequently.
Restaurant sales snapped back in August, which Black Box Intelligence attributed to higher consumer confidence levels as gas prices fell.
Inflation may be easing this year, but prices are still rising, adding to worries about regional bank failures and a potential recession before year-end. U.S. consumer sentiment fell to a six-month low in May, fueled by concerns about the debt limit standoff, according to a University of Michigan consumer survey.
Roughly a third of consumers surveyed by Datassential plan to dine out less over the next month, and about half plan to maintain their current restaurant-spending habits.
“Inflation and the economy are still more top of mind to consumers in terms of their financial planning, rather than any sort of fun or anticipation for travel,” Do said.
Despite diners’ caution, restaurants are optimistic that they’ll still see a summer boom. Nearly half of operators surveyed by Datassential anticipate higher sales or improved traffic this summer season.
The National Restaurant Association issued a “cautiously optimistic” seasonal forecast, according to Hudson Riehle, the trade group’s senior vice president of research.
Bars and eateries will add more than half a million seasonal jobs this summer — assuming lawmakers raise the debt limit, the NRA predicts. If the restaurant industry meets those expectations, it would be the strongest summer for hiring since 2017.
“The summer of 2023 is obviously going to be the most normal summer employment market since 2019,” Riehle told CNBC.
Summer typically ushers in a wave of seasonal restaurant jobs to meet higher demand, particularly in the Northeast and tourist destinations.
Travel tail wind
The travel industry is anticipating strong demand this year, which could boost sales for some restaurants. Half of Americans plan to travel and stay in paid lodging this summer, up from 46% last year, according to a Deloitte survey.
Roughly a quarter of every dollar spent at restaurants is tied to travel and tourism, according to Riehle’s estimates. Across restaurant segments, fast-food and fine-dining restaurants tend to benefit the most from tourism, Datassential’s Do said. Casual dining, which is already struggling to draw in eaters, is the least likely to see sales jump from travel.
But even a rosy travel outlook won’t necessarily lift the U.S. restaurant industry. Deloitte’s survey also found that more Americans are planning to travel internationally this summer — although international tourists visiting the U.S. could help make up that difference.
On top of that, only 53% of respondents plan to take at least one road trip, down from nearly two-thirds last year. That’s bad news for roadside fast-food restaurants that count on the business of feeding hungry travelers.
The push 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 on higher menu prices and are embracing ways to pay less for their meals.
In the first quarter, restaurant traffic from consumers who took advantage of deals rose 8% compared with the year-earlier period, according to market research firm Circana.
At the same time, most restaurants’ profit margins are improving, so some are pivoting to value meals and other deals to draw customers.
For example, fast-casual chain Noodles & Co. told investors earlier in May that its customers were resisting its higher prices, especially after its latest increase of 5% in February. At the same time, the cost of ingredients for dishes like BBQ Chicken Mac have fallen faster than executives predicted, the company said.
So, Noodles & Co. plans to lean into deals. It brought back its popular 7 for $7 menu and introduced a $10 mac and cheese meal.
“Given where consumer sentiment is today, some of the data we’re seeing, we do feel that have to be a bit more value-oriented,” CEO Dave Boennighausen told CNBC.
This story originally appeared on CNBC
