Restaurant sales soft as economic recovery slows during 1st Q

Nation's Restaurant News,  May 27, 2002  by Malcolm M. Knapp

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The estimated comparable-restaurant sales gain in March 2002 was 0.6 percent. That is in comparison with the slightly-below-trend March 2001 gain of 4.0 percent for comparable restaurant sales. Estimated comparable restaurant guest counts in March declined by 1.0 percent, in comparison with a March 2002 increase of 1.1 percent.

Final February 2002 comparable-restaurant sales results show a year-to-year increase of 2.4 percent, with the comparable guest count rising 1.0 percent. Those results are meager in light of the well-below-trend increase of 2.6 percent for February 2001 for comparable-restaurant sales, which marked the fifth-highest month of last year in that measurement. Same-restaurant guest counts declined 0.2 percent in February 2001.

Distortion in the results for February reflect the shift in the Super Bowl into February and the two-weeks-earlier-than-usual start of Lent with Ash Wednesday on Feb. 13 this year, vs. Feb. 28 last year.

The estimated results of March 2002 are not good even given the strong 4.0-percent comparable-restaurant sales increase of last year. Distortions in March include Easter Sunday's being on March 31, vs. its falling on April 15 last year, and parts of spring break therefore taking place in March.

My principal hypothesis for the low March comparable-restaurant sales is that consumers gained confidence in February and early March that the economic decline had bottomed and the economy would improve. With that in mind, they committed to vacations, which was a questionable purchase until people thought the economy was improving. Once those commitments to purchase or actual payments had taken place, consumers cut back on ordinary weekly purchases, including casual dining, which had a bit of a boost in prior months as an alternative to a minivacation.

Cruise line bookings are strong, and Disney in Orlando, Fla, had strong hotel sales toward the end of March. In the last week of that month, comparable-restaurant sales in the Greater Orlando television market rose 11.5 percent. Comparable-restaurant sales results in all five of the five weekends in March were positive. The reverse was true for same-store guest counts.

In terms of statistical comparison, the first quarter of 2002 will be going against the strongest quarter of 2001, and results will not be so robust. Bear in mind that comparable-restaurant sales gains for the first quarter of 2001 were 4.1 percent, with January at 5.7 percent. Sales were impaired by weather in February 2001 and rose 2.6 percent, while same-store sales in March -- the first month of the recession - increased 4.0 percent.

I expect that there will be an improvement in comparable-restaurant results as the calendar progresses this year through the weaker second and third quarters and the economy improves. Last year's third quarter was the weakest of 2001, and the fourth quarter was the second strongest of the year.

There is increasing evidence that an improvement in the economy will take place as 2002 progresses although each quarter may not show a smooth upward trend. The Gross Domestic Product for the first quarter of 2002 rose at an annualized rate of 5.8 percent, the fastest rate in more than two years. In contrast, the rate of growth of GDP in the fourth quarter of 2001 was 1.7 percent.

There is a growing consensus that the exceptional strength in economic activity in January and February took away from sales in March and April. If that is correct, then the recovery will slow down from the first quarter's activity and will be spotty. For example, warm weather and low mortgage rates in combination caused January and February to be the strongest on record for rate of sales of existing homes, while those sales in March fell a seasonally adjusted 8.3 percent to an annualized rate of 5.4 million homes.

Jobs are still hard to obtain. The Conference Board's help-wanted-advertising index fell to 46 in March, down from 47 in February. There has been virtually no change in the index since November 2001. An additional negative for March 2002 was the 20-percent increase in the retail price of gasoline over the course of the month, from an average of $1.14 on March 4 to $1.37 at the end of March, because of tension in the Middle East.

So far, job openings for college graduates have fallen 20 percent from what they were last year. Accordingly, entry-level salaries are down, with even computer-science degree holders being offered 3.6-percent lower starting salaries than they were last year. That reflects caution on the part of business, which wants to see much firmer and more robust signs of sustainable growth before making hiring commitments. In that regard, the first area to show an increase is the temporary employment agency job placements. Temporary workers increased by 69,000 in March, which makes two months in a row that temp-worker employment increased.

The Consumer Confidence Index rose dramatically in March 2002, by a spectacular 15.2 index points, to 110.2. However, that marked a decline of 6.7 index points from March 2001. It also was 8.8 points below June 2001. The March index result is the first time the confidence index has been at 100.0 or above since August 2001.