According to RBC Capital Markets, restaurants have seen six straight quarters of weakened foot traffic and sales. The good news is that the first quarter of 2016 saw an increased spend of 6.25%. The bad news is that this compares to an increased spend of 8% in the second quarter of 2015. Also according to RBC Capital Markets, as well as the Bureau of Labor Statistics, home cooking is outpacing restaurant spending for the first time since 2013.
All of these numbers can be broken down to shed positive or negative light on the restaurant industry but if you focus on the big names, such as McDonald’s Corp. (MCD), Chipotle Mexican Grill, Inc. (CMG) and Dunkin' Brands Group, Inc. (DNKN), you will find a common theme, which is either a downturn in sales or lackluster second quarter results. This can be attributed to three key factors: social unrest, rising cost of living and slower brick-and-mortar sales. Social unrest partially relates to the presidential election. (See also: The Cost of Buying a McDonald's Franchise.)
The rising cost of living has disallowed many big restaurant chains to raise prices. In fact, they have been more likely to reduce prices. Rent and healthcare costs have also been spiking, which has helped lead to a hesitant consumer. Furthermore, supermarkets are offering promotions (increased competition), and restaurant chains are under immense pressure to increase employee pay. If these restaurant chains give in and indeed increase employee pay, this will also impact the chain’s ability to raise prices. This, in turn, negatively impacts margins and net income.
In regards to slower brick-and-mortar sales, more consumers shopping online equates to reduced foot traffic for neighboring restaurants.
There are at least two positives for restaurant chains. One is reduced food costs, which will help maintain healthy margins. The other is steady demand for planned restaurant openings. The latter point indicates that big restaurant chains see all of the above as short-term hurdles as opposed to perpetual challenges. (See also: 5 Restaurant Stocks With High Debt Levels.)