Restaurants: Steepest Decline In Traffic Since 1981

The U.S. Restaurant Industry is facing its toughest times in 3 decades and the outlook appears to be grim unless the economy shows signs of rebound. With lower disposable income, consumers are spending less and dining out seldom.

Moreover, rising unemployment is making things worse. Most of the companies have either scaled back or postponed further unit development. Famous Dave’s of America (DAVE), Cosi Inc. (COSI), BJ’s Restaurants (BJRI), California Pizza Kitchen (CPKI) and Red Robin Gourmet Burgers (RRGB), which operate in the casual dining segment, are experiencing declining same-store sales and traffic counts.

A recent report by market research firm, NPD Group asserted that U.S. restaurant guest traffic plunged 2.6% for the quarter ended May 31, the steepest fall in 28 years compared to an increase of 0.5% during the prior year quarter. More than 50% of the decline was due to fewer dinner visits from parties with children across all industry segments.

The 2% increase in average check failed to offset the steep decline in traffic. According to the report, restaurant industry units declined 1% or about 4,000 units, in spring 2009 compared to flat growth in spring 2008.

Traffic counts at quick-service restaurants, which include Burger King Holdings (BKC), Yum! Brands (YUM) and CKE Restaurants (CKR) declined the least. Guest counts at casual dining restaurant chains, like Cosi Inc., Panera Bread (PNRA), California Pizza Kitchen, O’Charley’s (CHUX), Darden Restaurants (DRI), Brinker International (EAT) declined 4%. Traffic in the midscale segment, which includes family dining restaurants like DineEquity (DIN) and Denny’s Corporation (DENN) fell 6%.

The report also revealed that traffic counts declined sharply during the dinner daypart at both quick service and casual dining restaurants. Breakfast and lunch daypart also experienced declining traffic. However, breakfast and lunch at quick service restaurants fared better than other full-service restaurants.

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