Restaurants see strong summer sales, while consumers fear inflation

A waitress delivers sushi orders at Masa Hibachi Steakhouse & Sushi in Silver Spring, Maryland.

Bill O’Leary | The Washington Post | Getty Images

Warmer weather often boosts restaurant sales, but diners may hold back for the second straight summer as inflation weighs on consumers’ minds — and wallets.

“I believe operators are still eager for a very good summer boon in foot traffic and sales … but I believe on the patron side, they’re more hesitant,” said Huy Do, research and insights manager at market research firm Datassential.

Last 12 months, consumers pulled back on their restaurant visits in May, June and July amid inflation concerns. Along with higher restaurant bills, diners were also paying more on the gas pump and in grocery stores.

Salad chain Sweetgreen said its sales slowed after Memorial Day and blamed the trend on a spread of things, 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 latest workforce and a return to normal seasonal fluctuations in college towns. And Shake Shack said its June sales upset as lower-income consumers visited less continuously.

Restaurant sales snapped back in August, which Black Box Intelligence attributed to higher consumer confidence levels as gas prices fell.

Inflation could also be easing this 12 months, but prices are still rising, adding to worries about regional bank failures and a possible recession before year-end. U.S. consumer sentiment fell to a six-month low in May, fueled by concerns in regards to the debt limit standoff, in line with a University of Michigan consumer survey.

Roughly a 3rd of consumers surveyed by Datassential plan to dine out less over the following month, and about half plan to take care of their current restaurant-spending habits.

“Inflation and the economy are still more top of mind to consumers by way of their financial planning, relatively than any kind of fun or anticipation for travel,” Do said.

Despite diners’ caution, restaurants are optimistic that they will 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, in line with Hudson Riehle, the trade group’s senior vice chairman of research.

Bars and eateries will add greater than half one million seasonal jobs this summer — assuming lawmakers raise the debt limit, the NRA predicts. If the restaurant industry meets those expectations, it will be the strongest summer for hiring since 2017.

“The summer of 2023 is clearly going to be essentially the most normal summer employment market since 2019,” Riehle told CNBC.

Summer typically ushers in a wave of seasonal restaurant jobs to fulfill higher demand, particularly within the Northeast and tourist destinations.

Travel tail wind

The travel industry is anticipating strong demand this 12 months, which could boost sales for some restaurants. Half of Americans plan to travel and stay in paid lodging this summer, up from 46% last 12 months, in line with a Deloitte survey.

Roughly 1 / 4 of each dollar spent at restaurants is tied to travel and tourism, in line with Riehle’s estimates. Across restaurant segments, fast-food and fine-dining restaurants are likely to profit essentially the most from tourism, Datassential’s Do said. Casual dining, which is already struggling to attract in eaters, is the least more 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 the very least one road trip, down from nearly two-thirds last 12 months. That is 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 often decelerate because operators don’t need them to draw customers. But diners are beginning to beat back on higher menu prices and are embracing ways to pay less for his or her meals.

In the primary quarter, restaurant traffic from consumers who took advantage of deals rose 8% compared with the year-earlier period, in line with market research firm Circana.

At the identical time, most restaurants’ profit margins are improving, so some are pivoting to value meals and other deals to attract customers.

For instance, 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 identical time, the price of ingredients for dishes like BBQ Chicken Mac have fallen faster than executives predicted, the corporate said.