Still-cautious clientele keep casual-dining sector in slump

Nation's Restaurant News,  Nov 12, 2007  by Malcolm M. Knapp

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Crude oil prices hit a 20-month low of $49.90 a barrel on Jan. 18, 2007, and by Oct. 12 had rebounded 57.86 percent to an intraday high of $84.05 per barrel, due to the increase in worldwide demand and speculation that Turkey might invade northern Iraq to suppress Kurdish rebels.

Iraq has the world's thirdlargest oil reserves.

The price per barrel settled at an all-time high of $83.69 on Oct. 12, an increase of 67.72 percent from the Jan. 18 low of $49.90 a barrel.

Consumers' emotional climate is still not good and continues to hurt casual-dining sales.

A positive for the restaurant industry is the growing difference between the Consumer Price Index for restaurant meals and grocery food sales.

On a year-to-date over year-to-date basis, through August the inflation increase for restaurant meals was 0.3 percentage points lower than the inflation increase for grocery food. Given the increase in wholesale food prices, I expect the favorable spread to continue for several months. This differential may provide some pricing power for restaurants, as consumers know that the cost of food is substantially increased.

August 2007's final comparable-restaurant sales result for the casual-dining sector was an average increase of 1.7 percent. That was 3.3 percentage points better than the below-trend August 2006 figure, a 1.6-percent decline, which tied for the third worst month of 2006. August 2007's comparable-restaurant guest counts were down 1.5 percent, compared with the 3.7-percent decline in guest counts in August 2006. Year-todate comparable sales through August 2007 were down 0.6 percent, versus 0.1 percent through the first eight months of 2006.

Year-to-date comparable guest counts through August 2007 were down 2.9 percent, versus a decline of 2.8 percent for the eight months through August 2006.

The casual sector's year-to-date all-restaurant sales through August 2007 rose by an average 5.1 percent, versus 6.4 percent through August 2006. Its year-to-date all-store guest counts through August 2007 rose 2.9 percent, compared with 3.7 percent through August 2006.

The Consumer Confidence Index decreased in September 2007 by 5.8 index points to 99.8. The index figure for that month was at its lowest level since reaching 98.3 in November 2005. Compared with September 2006, this year's September 2007 index figure was down 6.1 points.

The Present Situation Index fell by 8.4 index points to 121.7 for September, which was down 6.6 index points from September 2006. The Expectations Index--how people think the economy will perform in March 2008--fell by 4 index points to 85.2. That was a decrease of 5.8 index points from September 2006, when the Expectation figure was 37.3 index points below the Present Situation result. By September 2007, Present Situation still exceeded Expectations by a substantial 36.5 index points.

The unemployment rate in September 2007 was 4.7 percent, up 0.1 percentage point from August 2007. Unemployment has been between 4.5 percent and 5.5 percent in each month since July 2004, with the exception of the March 2007 rate of 4.4 percent, which matched the May 2001 unemployment low.