Restaurants

Cheap gas, American confidence: A restaurant growth recipe

Start Googling "Is the restaurant industry," and the most popular search is "Is the restaurant industry growing?"

This sheds some light on how weak the dining-out sector has been since the recession snapped many wallets closed.

But there's good news for the industry: Job creation is improving, gas prices are low and restaurants are seeing seats fill up again.

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For the first time since February 2012, the industry's same-store traffic grew, according to recent data from Black Box Intelligence, which tracks more than 20,000 restaurants.

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Peter Reidhead, GuestMetrics' vice president of strategy, sees an encouraging trajectory taking place in restaurants.

The period's traffic increases were "largely driven by gas prices having moderated nicely so that's been a nice relief for the consumer and freed up the budget," he said in a phone interview. The casual-dining and fine-dining sectors have shown the biggest improvements.

Some restaurants have reported seeing encouraging trends continue into October.

Panera Bread, for example, said its company-owned comparable net bakery-cafe sales grew about 3.3 percent in the first 27 days of the current quarter. This compares with 2.1 percent during the prior quarter, ended Sept. 30.

Meanwhile, McDonald's has seen its sales shrinkage improve. The fast-food giant's domestic same-restaurant sales were 4.1 percent lower in September. This narrowed sharply to a decline of 1 percent in October.

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Malcolm Knapp, whose eponymous restaurant index is closely followed in the industry, says weak retail sales often coincide with stronger restaurant numbers as people with limited budgets make trade-offs.

"What happened in September and October, retail sales have been weak and our sales have been looking great," he said.

Where McDonald's is making progress
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Where McDonald's is making progress

His index of casual dining performance shows an estimated 1.9 percent increase in comparable restaurants sales in October and a 0.2 percent increase in traffic. While the gas price drop has helped, it hasn't boosted spending to the same degree, as people have also worked at reducing debt, Knapp added.

Still, it's important to note that the improvements do not signify a return to normal traffic trends.

"The restaurant sector has been soft now for a few years and hasn't bounced back like a lot of retail sectors have," Reidhead said.

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For it to really improve, Reidhead thinks younger customers must participate more in the economic recovery.

"Honestly, I think for the restaurant and bar sector to really be thriving again, people in their 20s and 30s really need to be sharing in the economic recovery in a way they aren't today," he added.

While the unemployment rate fell to just 5.8 percent overall in October, it still stands at 10.5 percent for those aged 20 to 24 and 6.2 percent for people aged 25 to 34, two groups that are also likely to be saddled with student debt.

"What we're seeing is that fast food and bars are lagging behind so that I think it is disproportionately impacted by young people still being squeezed economically," Reidhead said.