by John A. Gordon, Principal and Founder, Pacific Management Consulting Group
The discussion dejour in restaurants—actually of the last several years– is why can’t the industry drive “positive traffic” despite a really good consumer economy. On the positive side, restaurant food away from home outlays have now exceeded food at home outlays, continuing a long positive trend line. On the negative side, growth of the number of restaurants has exceeded population growth for years.  The National Restaurant Association Counts about 1,050,000 foodservice venues.
For a restaurant industry awash in numbers and analysis, the following actual Twitter thread among several long-time restaurant analysts and observers from last week is telling in terms of the state of the industry right now:
Twitter Observer One: In the first half of the year, estimated McDonald’s AUVs are up about $140,000 per unit, while Burger King, Wendy’s, Jack in the Box were up about $20,000 AUV per unit.
Twitter Observer Two: Wow! McDonald’s Customer traffic had to be down as a result?
Twitter Observer One: Yes, negative traffic.
Twitter Observer Three: Do you think McDonald’s franchisees are taking too much price?
Twitter Observer Four: Certainly, check is up, but there are many influences, like delivery.
Twitter Observer One: Like kiosks, like fresh Quarters, also. Mix.
Twitter Observer Four: check is the sum of price and mix.
While this conversation was focused on McDonald’s and the QSR segment, the same basic issues hold true for casual dining. Traffic is down except for a few positive standouts. The likely causes: too many chain restaurants, independents coming and going but scoring growth over all; busy days and consumer time starvation; more people working from home, execution problems, lack of affordability. And the fact remains, some restaurant price is needed every year.
Note One: the concern about industry traffic from some investors and observers is overstated somewhat as restaurant sales are up year after year, virtually every year. Of course, it is true that too much price can be taken and that price/value can get out of kilter. But our biggest problem is our own self-discipline, too many restaurants and metrics and rewards systems that can be counterproductive.
Note Two: the industry needs to define traffic and transactions more clearly: Restaurants report check and traffic imprecisely, often based on tradition and custom. Older generation cash registers counted a “transaction” once the “subtotal tax” key was depressed; it was necessary to obtain a separate “ticket’’ count too. This terminology held over time. For example, in 2015, Ron Shaich at Panera took pains to explain to analysts that Panera entrée counts served were up but transactions slightly lower because of the larger party size in stores. QSRs serve bags of food composed of food and drink units; fast casual restaurants serve entrees, side items, and drinks; casual dining and fine dining restaurants primarily serve entrees and drinks, alcohol and side and dessert items. QSR and a few fast casuals have drive thrus that make counting actual customers impossible. Here is the translation key:
- Quick service: report transactions as individual guests, parties, or drive thru guests as they occur when cash or credit is tendered in store or online. Food and beverage food units sold are counted internally but no one reports these statistics.
- Fast Casual: same as above. These operations have the menu structure to report the number of entrees as a traffic indicator but do only in passing. Catering and delivery sales is reported separately, but most fast casuals resist breaking down a catering order into a standard number of guests served.
- Casual Dining and Fine Dining brands report entrees and use that as the proxy for customer count. Alcohol and bar sales is reported separately. The sales mix of off premise to go and delivery is now commonly reported. Fine dining has the least delivery so don’t look for much check distortion there.
It would help tremendously if restaurants highlight both transactions and traffic. This would primarily benefit the fast casual segment since their menu is entrée based. Not benefit only for analysts and investors—but for brand staff marketing departments and construction shops that need a point of clarity to focus on real restaurant activity drivers to build restaurants and marketing campaigns realistically.  QSRs could report food units sold which might offset the negative traffic talk.
Note Three: as we get deeper into the execution of the newer sales platforms, such as catering, pick-up and delivery sales that typically have a higher ticket than dine in customers—there will be disruptions to in store traffic and ticket. As those platforms become more effective, the traffic loss might well increase until the industry reconfigures entertainment, since entertainment has always been a feature of dining out. However, this industry is amazingly versatile through decades of economic and social change; delivery is not going to doom it.
- Note Four: Looking ahead, these traffic developments do have store real estate portfolio implications. In our formative years, we all heard CEOs talk about the one guest per week that would magically pay $40,000 to eat out, and therefore we would make our AUV goal for the week. It might not be that dramatic, but there is no doubt we as an industry are now If more traffic falls off, restaurant brands will need to work more store consolidation. One of the restaurant metrics that needs the most work is finding that point where more units opened year after year is found to be non-productive. This will be an especially difficult issue to deal with in franchised brands. Franchisees will have trouble closing stores that the franchisee has just finished paying off. Pizza Hut even now is seeing issues relative to real estate transformation in the US and it will be fascinating to watch.
About the author
John A. Gordon is a long-time restaurant industry analyst and management consultant, who works restaurant operations, financial management and strategy engagements for clients. As a master analyst of financial forensics (MAFF), he founded his consulting firm, Pacific Management Consulting Group in 2003 and is always reachable to talk restaurants at (858) 874-6626, email: firstname.lastname@example.org, website www.pacificmanagementconsultinggroup.com
 See US BLS and National Restaurant Association for both data tables.
 National Restaurant Association, 2018 Review.
 We can see independent case sales growth as reported by Sysco, US Foods and PFG as an indicator.,
 There is one notorious restaurant industry “short” who takes verbal, written or financial positions against the industry and hopes that the stock will fall or that the company will be destroyed in a cycle of “creative destructive capitalism”.
 Since 2000 for example, restaurant sales were negative only in 2009. BLS, Knapp Track and other trackers.
 “You manage what you measure”—Management 101.
 YUM Earnings Call, August 1 2019.
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