The Counter: Restaurant Industry Scorecard for FY 2017

Restaurant same-store sales were flat in 2017, posting no change over 2016. The year was marked by continued evolution in consumer preferences, but positive economic indicators and improved consumer confidence failed to convert to more comparable sales for restaurateurs.
 
Pizza Reigns Supreme
The pizza segment experienced the most significant growth through Q4, with a same-store increase of 2.9 percent. Meanwhile, quick serve posted a modest 0.8 percent increase for 2017, led by Carrols Restaurant Group (+5.2 percent), Taco Bell (+4.0 percent), and McDonald’s (+3.6 percent). Upscale casual and casual segments reported flat results for the year at -0.1 percent and 0.0 percent, respectively. Fast casual had the most challenging year overall, posting -1.6 percent for 2017.
 
Labor & Commodity Costs Rise
Cost of sales reached 29.0 percent for 2017, a slight uptick from 28.8 percent in 2016. At the same time, commodity prices continue to be challenging to predict. The costs of eggs (+15.1 percent), fresh vegetables (+6.5 percent), and pork (+3.2 percent) increased, while cheese (-5.3 percent) and beef (-0.3 percent) prices dropped. Labor costs also rose slightly through Q4 2017, posting a 0.7 percentage point increase over 2016. High turnover and increasing costs continue to challenge the restaurant industry, where lukewarm sales results means that each piece of the profitability puzzle must be scrutinized.
 
Outlook for 2018
While some restaurant owners invested heavily in technology, delivery partnerships, new concepts, and menu upgrades in 2017, it did not encourage the majority of consumers to significantly increase their check size or frequency of dining out. Despite this, restaurants will likely continue reinventing their concepts this year, as we expect many will focus on high quality ingredients, convenience, delivery, and to-go meals.
 
As restaurants continue to adapt to changing consumer preferences, shifting economic conditions may have a significant impact on the industry, namely U.S. tax reform. While each new tax provision must be considered, and there will likely be both positive and negative implications for restaurant owners, analysts have been bullish for the impact on sales. Earnings reports will soon begin to reflect tax reform’s impact on restaurant profitability overall, and early results bode well.
 
With more positive forces than negative headwinds, 2018 could be a stronger year for restaurants that make the right investments to get their consumers in the door…or on the app.
 
To benchmark your organization or learn more about restaurant industry performance—including segment leaders and labor costs—view The Counter in full here.

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