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A ‘restaurant recession’ sounds scary. Are we really on the brink of one?

A Dunkin’ Donuts restaurant. (Susana Gonzalez/Bloomberg)

In the past several weeks, the picture that we’ve gotten of the restaurant industry hasn’t exactly been a promising one. Dunkin’ Donuts saw traffic slip at its U.S. locations in the latest quarter. Potbelly Sandwich Works said it expects to be challenged by a “more cautious consumer” in the near future. And McDonald’s said its sales were hampered by a broad-based retreat from dining out.

Talk of a “restaurant recession” has been percolating on the Internet after an investment bank analyst used the provocative phrase in a research note to describe where the dining industry — and the overall economy — might be headed. So what’s going on here? Here, we break down a few popular theories.

Theory 1: This is an early, foreboding sign that consumers are starting pull back on their spending. This is the most frightening of the possibilities, because if it’s right, it suggests the broader economy could be poised for slowdown. But it’s also the explanation that seems toughest to prove.

Let’s start with the factors that are causing the hand wringing. For one, restaurants have been one of the bright spots of the broader retail industry for years now, but recent data suggests business is getting gloomier. NPD Group, a market research firm, found that visits to fast-casual eateries fell in the most recent quarter for the first time since it began tracking them in 2004. Trade publication Nation’s Restaurant News found that sales at publicly traded restaurants saw a median decline of 1.7 percent in the second quarter.

There’s some anecdotal evidence, too, that seems discouraging. Michael O’Donnell, the chief executive of the parent company of Ruth’s Chris Steak House, told investors in late July that its a la carte dining business is struggling. Unlike its happy hour or private events business, that area is usually fueled by what he called “aspirational” diners, the ones who might go to the steakhouse for a birthday or anniversary dinner.

Mark Kalinowski, a restaurant industry analyst for Nomura, said he believes restaurant sales can offer the earliest hints of an economic downshift.

How you eat and what you’re spending money on to eat tends to be a very real-time decision by literally hundreds of millions of people,” Kalinowski said. 

But before you start fretting that economic storm clouds are forming, consider that there are plenty of other indications these fears are overblown. Healthy consumer spending is what powered GDP growth in the second quarter. The National Retail Federation recently bumped up its forecast for industry-wide growth for the year, saying factors such as high consumer confidence drove the decision. And then there’s the fact that some retailers have seen shoppers coming out in full force. Home Depot recorded a 6 percent increase in revenue this quarter, and sales were up 8.1 percent of items that cost more than $900. TJX Cos., the parent of T.J. Maxx and Marshalls, saw total sales soar 7 percent. Within the restaurant industry, Domino’s Pizza and Papa John’s had a solid quarter.

Theory 2: Grocery shopping is looking like a good deal right now. According to data from the Bureau of Labor Statistics, prices for “food at home” — a proxy for grocery store prices — fell 0.2 percent in July and have declined 1.6 percent over the last 12 months. Meanwhile, the “food away from home” category has seen prices move in the opposite direction: They notched up 0.2 percent last month and 2.8 percent over the previous year.

Executives from McDonald’s, Wendy’s, and Jack In the Box each mentioned this pattern on their most recent earnings calls because they believe the wide gap in prices was a challenge to their sales in the most recent quarter. And it indeed seems plausible that some shoppers saw such good comparative value at the grocery store, they might have backed off from eating out. Plus, big chains such as Whole Foods Market are making a push around prepared foods, which offer more direct competition to quick-service and fast-casual restaurant players.

Theory 3: These earnings reports aren’t capturing the full picture. Of the 25 largest restaurant brands in the United States this quarter, Kalinowski said only one likely posted an increase of 5 percent or better in sales at restaurants open more than a year. That would be lowest number of restaurants hitting that threshold in any quarter so far this decade, Kalinowski said.

But that doesn’t necessarily mean things are looking rough out there. It just means business is tough for those particular mega-brands. It doesn’t tell us much about how regional players or independent outposts are faring. Think about these dynamics in the D.C. area: Local favorites Sweetgreen and Cava Grill have been opening shops rapidly across the region. When you started adding one of those spots to your regular lunch or dinner rotation, it probably came at the expense of dollars you used to spend somewhere else — Chipotle, perhaps, or Panera Bread.

“Ultimately, consumers are spreading their purchasing across a broader range of brands,” said Darren Tristano, president of restaurant research firm Technomic. 

And then there’s the customers who are lining up at Bad Saint or scrambling to get a reservation at Pineapple & Pearls. The earnings of the big restaurant companies do little to illuminate what is going on with these experience-oriented consumers, who are dining out almost as a hobby.

Restaurant reservations have become so easy to make that sometimes diners don't follow through. Here's why you might be pre-paying for your next big meal out. (Video: Jayne Orenstein, Julio Negron/The Washington Post)