The Counter: Restaurant Industry Results for 2016

Restaurants sales stalled in 2016 as uncertainty around the U.S. economic and regulatory environments persisted. Our annual analysis of publicly traded restaurants found that same-store sales were flat last year—a slightly more optimistic picture than in Q3 when the industry experienced its first decrease since 2010.
This broader stagnation comes as restaurants report lower traffic counts, in part as a result of evolving consumer preferences and market composition as smaller chains, independents and chef-driven concepts expanded rapidly. Despite slowed foot traffic, restaurant spending exceeded grocery spending for the first time in 2016, according to Fitch Ratings—one positive indicator for 2017 tickets.
The Domino Effect
The pizza segment experienced the most significant growth in 2016, with a 4.6 percent same-store sales increase. For the ninth consecutive quarter, Domino’s dominated the pizza pack, reporting a 10.4 percent boost last year. The company’s Tweet-to-Order rollout in 2015 and other early digital innovations bolstered the brand’s sustained success.
The quick-serve segment saw the second-greatest sales uptick in 2016 with 0.9 percent growth. Harnessing the power of Snapchat, adopting mobile pay and rolling out limited-time menu items, KFC bested its quick-serve competition with a 3.0 percent same-store sales increase in 2016.  
Challenges in Fast Casual
The fast casual segment reported a 1.4 percent decrease in same-stores sales in 2016. Chipotle’s 20.4 percent decline continued to work against the segment’s average for the year. However, the brand is showing signs of recovery, experiencing a more modest 4.8 percent decline in Q4 2016 compared to the double-digit decreases reported for the prior four quarters. Once again, Wingstop and Shake Shack prevailed in the fast casual segment in 2016, with reported increases of 5.4 percent and 4.2 percent, respectively.
Commodities and Costs of Sales Dip
With the exception of the pizza segment, which invests heavily in promotional strategies, cost of sales dropped 0.6 percent across the board in 2016, primarily driven by sustained low commodity costs.
The cost of eggs experienced the most dramatic commodity price reduction, falling more than 50 percent in 2016 following a shortage in the prior year. Meanwhile, beef costs continue to drop, declining 15.5 percent for the year.
Looking Ahead
With today’s convenience economy and the attractive savings offered by dining at-home, it’s likely that foot traffic will remain flat in the year ahead. To remain afloat, restaurants will need to drive sales by leveraging the very trends that are shaping this evolving consumer behavior. We expect to see brands add value to the at-home dining preferences by expanding delivery options, either through traditional or third-party providers.
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