The fast food industry showed no traffic growth in 2016, even as chains worked hard to entice customers with combo deals, day-long breakfast and promises of a humane migration to cage-free eggs.

With the quick-service segment representing an outsized share of the food service industry, the trend is a concerning one for restaurants as a whole, says The NPD Group, a market research firm that tracks the industry.

Blame the slump, in part, on fewer people opting to eat out for lunch and rising menu prices that are keeping diners from returning to restaurants, says NPD analyst Bonnie Riggs.


With more people working from home and growing numbers of consumers shopping online rather than visiting a store and grabbing a bite to eat, going out for lunch has taken a hit. And because lunch accounts for the single largest share of fast-food restaurant traffic among all meals, the 2 percent decline in those visits had a measurable effect on the segment, NPD found.

Not since the recession has Riggs seen a pattern of fast food visits either declining or staying flat, with no quarterly growth during the year. Full service restaurants already had been on a trajectory of waning business and last year was no different, with family-style eateries like iHop off 2 percent, casual down 3 percent and fine dining flat.

“Because operating margins have been so thin and operating costs have increased so much in terms of labor and real estate leases and health insurance costs, operators have increased prices too much,” Riggs said. “It’s gotten to the point where food inflation at home is negative while at restaurants it keeps increasing.”

As evidence, she pointed to her recent survey in which 63 percent of the consumers queried said it was less expensive for them to eat at home than at restaurants.


Even though there was no growth in traffic to quick-service venues, the average check across the more than 49 billion visits in 2016 grew by 3 percent, indicative of the menu price hikes that are discouraging consumers, says Riggs.

Fast food giant McDonald’s did succeed in turning around slumping sales after introducing more than a year ago its wildly successful all-day breakfast. While global same-store sales during the most recent quarter were up, they were down 1.3 percent for domestic sales, which McDonald’s executives blamed on comparisons to a year earlier when the company was experiencing the large boost from its breakfast program.

What’s especially notable in the year-end numbers is that the darling of the quick-serve industry — the fast casual burger, Mexican, pizza and bakery cafe restaurants — were experiencing a marked slowdown in growth. In 2015 the segment enjoyed a robust 8 percent uptick in traffic, but it dropped to just 1 percent in 2016, NPD found.

Even after taking fast casual behemoth Chipotle out of the equation, given the huge hit it took following a flurry of food contamination incidents, the segment’s growth still slowed to 5 percent.


“I’d say the bloom is off the rose and that growth has slowed rather dramatically,” Riggs said. “Even when you take Chipotle out, that segment has slowed down to 5 percent, but the expansion of new restaurants has been 7 percent. We’ve just got too many restaurants and not enough people to fill them.”

J. Dean Loring, founder of San Diego’s successful Burger Lounge chain, agreed that 2016 was a challenging year for the industry as a whole and not just fast casual. While his burger enterprise continued to see growing sales and expansion into new markets, those gains aren’t as robust as they were over the past five years, he said.

“We’re seeing a saturation of brands in general, and that’s somewhat exacerbated by this decline of retail brick-and-mortar where landlords are now leasing more to restaurants than traditional retail,” Loring said. “You’re also seeing the emergence of food delivery options where people are making choices to prepare food at home.”

The stall in growth comes as restaurants face rising costs, most notably in labor, especially in California and other states that have moved to boost the minimum wage.


“Although price increases are necessary over time, it doesn’t make sense to raise prices when you’re in a declining traffic environment because you run the risk of facing more declines in traffic,” noted Loring.

NPD is predicting more of the same for the future, although the 2017 forecast does show a slight 1 percent gain for fast food venues, compared with an overall 2 percent decline for full-service restaurants.

Business


lori.weisberg@sduniontribune.com

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Twitter: @loriweisberg