As 2023 ended, the restaurant industry had reasons to celebrate. Data from MasterCard reveals that restaurant sales experienced a robust year-over-year growth of nearly 8%, with a noticeable uptick in customer traffic. This surge in sales and footfall signifies a promising rebound for an industry that faced its fair share of challenges throughout the year.
Consumers Dining Out for the Holidays
Consumers’ intentions to dine out during the holiday season translated into reality, as a National Restaurant Association survey conducted in early December showed that 63% of adults planned to dine in restaurants, while 48% opted for takeout or delivery services. After a slump in traffic during September and part of October, the industry experienced a resurgence starting in early November, which continued throughout the holiday season. MasterCard Spending Pulse data reveals that restaurant sales surged by an impressive 7.8% from November 1st through December 24th, compared to the same period the previous year. This growth rate outpaced most other sectors, including retail, which saw a 3.1% year-over-year increase.
Pricing Strategies and Consumer Willingness
Technomic Ignite’s Tindex offered further evidence of the industry’s resilience, reporting that industry sales in November 2023 were nearly 10% higher than in November 2019. Even though much of this increase can be due to higher prices, consumers are willing to pay these higher prices. Notably, wage growth has outpaced inflation, contributing to consumers’ ability and willingness to dine out.
Encouraging Signs of Traffic Recovery
Another promising sign for the industry is the apparent recovery of customer traffic. Data from Guest XM by Black Box Intelligence for November indicated that traffic growth was the third strongest since February 2022. It’s worth noting that the two top-performing months, January and February 2023, were outliers due to easy comparisons with the early 2022 Omicron wave. That makes November 2023 stand out as the month with the most robust same-store traffic performance in nearly two years, with a 0.7% acceleration compared to October’s year-over-year traffic growth of -1.5%. Moderating menu prices and trade-down opportunities within the industry were cited as factors driving this positive trend.
Strategies to Entice Consumers During the Holidays
Throughout the holiday season, restaurant companies of all segments tried to entice consumers with holiday-themed menu items, promotions, and deals. Optimism was palpable during Q3 earnings calls, with CEOs like John Peyton of Dine Brands and Kevin Hochman of Brinker, noting the importance of the holiday season for their brands in terms of sales and profits. Jefferies analyst Andy Barish highlighted the favorable holiday calendar in 2023, with Christmas falling on a Monday, potentially boosting restaurant visits.
However, it’s essential to remain cautious as sales are expected to moderate in January and February, primarily due to tough year-over-year comparisons. The entire year of 2024 could witness a milder growth trajectory for the industry.
Factors Influencing Future Growth
Dennis Geiger, an analyst at UBS, emphasized the likelihood of sales growth normalization in the coming months. Despite favorable employment and income growth data, he expressed a slightly cautious outlook for the industry in 2024, echoing sentiments from industry giants like McDonald’s. Geiger noted that if unemployment rates were to rise, they could be a critical factor affecting restaurant demand. Piper Sandler analyst Brian Mullan concurred, highlighting the importance of monitoring unemployment trends.
As we await the December jobs report, early signs from the U.S. Bureau of Labor Statistics suggest a minor dip in job openings and hires at the end of November. These subtle changes indicate a cooling labor market but should be interpreted cautiously, given the numerous variables at play.
Conclusion
In conclusion, the restaurant industry’s strong finish to 2023 is a testament to its resilience and adaptability in facing challenges. While uncertainties loom, the industry’s ability to respond to changing consumer behaviors and economic conditions will continue to shape its trajectory in the coming year. As consumers and restaurant owners navigate the evolving landscape, the lessons learned in 2023 will serve as valuable insights for the future of dining out.
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