The good news for restaurant operators: There were more signs last month that the year-long problem with inflation appears to be waning.
The bad news? Sales might be coming down, too.
That, at least, is based on economic data released this week.
The Producer Price Index, an index of the prices businesses pay for goods and services, declined 0.5% in December, the federal government said on Wednesday.
But the prices for foods declined even more, by 1.2% from November. And many of the major commodities were down. The prices for vegetables declined 9.4% and for fruits they fell 7.8%. Chicken prices declined 3.6%. Pork prices declined 1.3%.
There were some exceptions. Beef prices rose 4.2%—though they are down 7.8%.
The worst, by a long shot, was eggs, which soared another 24.5% in December. Over the past year, producer prices for fresh eggs are up 192%.
And it’s worth noting that total food prices remain far higher than they were a year ago, up 14.3%. Still, the month confirmed some of the bullish suggestions from restaurant executives of late that their outlook on inflation has improved. “We see deflation” in our food basket, Noodles & Co. CFO Carl Lukach told investors at the ICR Conference in Orlando earlier this month. Several other executives echoed such sentiments.
Sales may be another matter, at least looking at broader numbers.
Total restaurant sales declined 0.9% between November and December, the second straight monthly decline, according to retail sales data released by the U.S. Census this week.
That said, for the year restaurant sales remain 12.1% higher than they were a year ago, much higher than food inflation of 8.5%—suggesting that restaurants are generating organic sales growth from a higher number of visits or from customers ordering more items per visit.
But the December numbers reveal that the industry may have lost some momentum, perhaps as lower-income consumers cut back, either by ordering fewer items or by visiting lower-priced restaurants.
Sales at quick-service restaurants rose 6.1% year over year in the fourth quarter, according to data from Revenue Management Solutions. Traffic declined 4.2% in the period, a decrease from the 3.5% decline in the third quarter.
One note from RMS: “Quantity per transaction,” or the number of items per order, declined 4.8%. That suggests more normalized dining in the period and indeed, traffic in drive-thrus declined 12.2% while dine-in traffic increased 31%.
That said, some operators at the ICR Conference earlier this month were upbeat. “We had a really strong exit to the fourth quarter,” Shake Shack CEO Randy Garutti told investors. Its same-store sales rose 5.1% in the quarter, though that was lower than analysts expected.
Same-store sales rose 6.2% at Burger King restaurants operated by franchisee Carrols Restaurant Group, which owns one out of seven Burger King locations in the U.S. That number accelerated from the third quarter, suggesting an improving market for that chain.