The restaurant industry hit a rough patch in 2016, but things could be looking up in 2017 — especially for quick-service chains.
After hitting a speed bump earlier this year, these casual eateries are expected to see a slight improvement in traffic and sales in the New Year. They’re also expected to outperform full-service restaurants, which favor a complete dining experience over speed.
Overall, the slight uptick in quick-service sales should be enough to lift revenues in the broader restaurant industry, according to the research firm Technomic.
“Our expectation is that the industry will do just a little bit better next year than it did this year,” Darren Tristano, president of Technomic, told CNBC. “We are kind of at a stage where we think it’s going continue to grow at a modest pace.”
Across the board in 2016, restaurants have seen a slowdown in traffic. A combination of economic uncertainty, a decline in at-home food costs and market saturation has meanwhile strained sales. Industry traffic trends turned negative in the third quarter, when visits to quick-service locations declined for the first time in five years.
Yet full-service restaurants, which include a wait staff, have had an even tougher run.
“Major full service chains, especially in the casual dining sector of the market, are really struggling,” Joe Pawlak, managing principal at Technomic, said in a statement last month.
The caveat to that trend has been independent eateries, which are attracting consumers with their “unique offerings, local orientation and strong value propositions,” Pawlak noted.
For the most part, quick-service chains — where customers pay before eating — have fared a bit better. Domino’s saw revenue grow 16.9 percent in the third quarter versus the prior year, due in part to strong same-store sales growth. The company said domestic same-store sales rose 13 percent in the latest period, marking the 22nd consecutive quarter of positive U.S. growth.
Other chains like McDonald’s, Wendy’s and Starbucks blamed election uncertainty for lower same-store sales in the first half of the year, but seemed to have recovered in late 2016. Still, those gains don’t appear to be enough.
In November, Technomic analysts trimmed their projections for the industry’s growth for the end of 2016 and 2017, citing declining consumer traffic. The firm anticipates sales at full-service restaurants will grow about 3.5 percent for 2016 and 2017. Adjusted for inflation, the real growth is estimated to be about 0.8 percent.
Limited-service restaurants may fare slightly better, according to Technomic. Sales at these chains are expected to grow about 4.9 percent in 2017. The firm did not provide an inflation-adjusted estimate for these restaurants.
“Menu prices at some fast casual restaurants have risen to a level where the perceived value for a typical consumer has eroded,” Erik Thoresen, a principal at Technomic, said in a report in November. “Add to that the struggles of Chipotle, which represents a sizeable share of the fast casual industry, and it was evident that forecast revisions in for 2016 and 2017 were necessary.”
Technomic added that the fast casual sector remains among the fastest growing areas in food-service, despite these headwinds.
In terms of foot traffic, analysts at The NPD Group predict a similar trend as Technomic’s sales projection. Quick-service chains are seen growing traffic by about 1 percent, while visits to full-service chains are anticipated to decline 2 percent.
Quick-service chain visits represent about 80 percent of total visits industry-wide.
“With continued focus on consumers’ ever-changing wants and needs, operators and their partners are in a position to alter the current forecast,” Bonnie Riggs, restaurant industry analyst for The NPD Group, said. “For all of the industry’s challenges, it is still in better shape than many brick-and-mortar retailers.”