Harvey Hits Chain Restaurants – But Not Just Harvey

Worst downturn in foot traffic and same-store sales since 2009.

That hurricane Harvey will leave marks on overall economic data, after the ravages it produced in one of the largest urban areas in the US, is clear. Chain restaurants had already been struggling with 17 months in a row of year-over-year declines in same-store sales and foot traffic, the longest downturn since 2009. Then Harvey made landfall.

And August became the 18th month in a row of year-over-year declines, with foot traffic at chain restaurants falling 3.9% and same-store sales 2.0%.

Sales fell in 153 markets and rose in 42 markets. The Western Region was the least bad market, with same-store sales inching up 0.1% and foot traffic falling 1.9%. Texas was the “worst region” with same-store sales falling 5.2% and foot traffic plunging 7.2%. In the area of Texas that was affected by Harvey, foot traffic and sales fell to near-zero for the last week in August.

The overall US data reflects “the difficult environment many chains are facing in today’s rapidly changing market,” said the report by TDn2K whose Restaurant Industry Snapshot tracks sales at 27,000 restaurant units from 155 brands, generating $67 billion in annual revenue. That’s about 10% of total revenues at “eating and drinking places” tracked by the Commerce Department.

The report goes on to explain that “the industry’s underlying performance was actually stronger than the topline numbers suggest.”

Or less bad.

During the first three weeks of August – before Harvey hit – same-store sales were still down, but only 1.4% year-over-year and foot traffic was down 3.0%. So this was bad, but just not quite as bad. Then came the final week in August. The report actually found two events that weighed on it: Harvey and the Mayweather-McGregor fight.

The effects of hurricane Harvey brought sales in the affected area to near zero and crushed overall sales numbers for Texas. For the first three weeks in August, same-store sales in Texas were down just over 2%. But during the final week, same-store sales in Texas plunged 15% year-over-year. Given the size of the affected area, it mattered on a national level:

Texas performance lowered the national sales results by more than 1.0 percentage point in the final week and 0.3 percentage points for the entire month. The negative effects from the storm are expected to continue for months.

And the report found a second reason – a nationwide reason – for the fall-off at the end of the month: the Mayweather-McGregor fight. It occurred on the final Saturday of August.

With an estimated 4.5 million pay-per-views at about $100 each, the spectacle had roughly a $450 million impact on that single evening. Millions of potential restaurant consumers modified their plans because of the event.

The losers:

Full-service segments with less emphasis on sports and televised events (fine dining and upscale casual) saw a severe negative impact.

But there were some winners too:

Casual dining bar and grill concepts, which often feature sports and specials in their bars, had an improvement in sales for the week.

The report also lamented the broader economic context that has been dogging the industry, in addition to the impacts of Harvey and potentially Irma:

The economy expanded moderately in the summer, though the hoped-for acceleration didn’t occur. Job growth was decent but nothing great. Indeed, for the first eight months of the year compared to the same period in 2016, job increases were about 10,000 per month lower. That has translated into modest income increases, especially when adjusted for inflation.

Consumer spending power remains limited and that is restraining retail sales, especially at restaurants. The impact of hurricane Harvey and potentially Irma are large enough to slow growth in the third quarter.

But the rebuilding should kick in during the fourth quarter and cause activity to reaccelerate. That data we see over the next few months will be distorted by the unusual weather and has to be viewed as only representing short-term and not long-term trends.

We may not get back to more normal growth until early 2018, but that is still expected to be same roughly 2.25% pace we have seen for the past six years.

The microcosm of chain restaurants is summarizing the economic scenery overall: Sluggish growth in the overall economy, consumers hampered by thin wage increases, with too much consumer spending being siphoned off by nondiscretionary spending. And while all this was hobbling along, hurricane Harvey hit — and soon Irma may hit — further diminishing demand by enough that it shows up in the national numbers. This will put downward pressure on the economy for a few months, until the rebuilding will eventually add to growth to get back to the same slow-motion range the economy has been in for years.

The brick-and-mortar retail meltdown has been active over the past two weeks: Vitamin World reportedly plans to file for bankruptcy. Perfumania Holdings just filed for bankruptcy. Bon-Ton Stores and Toys R Us hired bankruptcy advisory firms. Read…  Brick & Mortar Meltdown: Bon-Ton Department Stores Hires Bankruptcy Advisor

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  41 comments for “Harvey Hits Chain Restaurants – But Not Just Harvey

  1. Petunia says:

    When the insurance money starts going out for Harvey the restaurants might snap up, but only for a bit, until the homeowners realize what it is going to cost to rebuild. Then there is going to be a cutback on all purchases not absolutely necessary.

    • Rates says:

      Yeah but look at the other side i.e. the builders, construction workers, etc. They are salivating at all these new business. They’ll be able to go out more to keep the economy rolling.

      Debt of entity A is asset for entity B. Unfortunately, in this case the misfortune of a group of people is the fortune to some other group of people.

      • Petunia says:

        I’ve seen this situation up close and the rebuilding money is never enough. The house will come back, but the rest will come back slowly, if at all. The houses may look newer when it’s all done, but a lot sparser.

        • JungleJim says:

          Agreed, but I think it’s a bigger problem than that. Many of the losses were uninsured or at least under-insured.

          I am writing this from Clearwater Florida. I live in a no evac zone and as “ify” as the weather forecasting has been, I decided not to go. In any case, the roads are hugely congested and the thought of being caught out in the open wasn’t attractive.

          As bad as Harvey is/was Irma rises serious questions. Who will write insurance in Florida after this? The “gubmint” might cover some of it, but probably not much.

        • Frederick says:

          JungleJim says that the gubmint will cover it Wait a minute I thought we were bankrupt If that’s true how will they cover anything? They will be lucky to avoid a currency collapse from what I’ve been reading regarding the Chinese plan to purchase oil in gold backed Yuan soon GOT GOLD?

      • OutLookingIn says:

        The “Broken Window Effect”.

        This has always been a scurrilous prevarication.

        Having something of value destroyed to only then replace it, is a nil sum game. One cancels the other. To say this is good for an economy, or that it “adds” to the GDP is another prevarication.

        Like the old Polish blanket joke;
        Wanting a longer blanket, he cut a foot off the top and sewed it onto the bottom. A zero sum gain game. Disasters such as Harvey and soon to be Irma, are nothing more than a wealth transfer mechanism, without real gain.

  2. Colin says:

    The restaurant recession should be major news in this country. They don’t like saying these words:Americans are broke. Should we expect restaurants to recover past its peak at some point, or have restaurants peaked for good?

    • Petunia says:

      There are a lot of really bad restaurants. My grandparents were in the restaurant industry and if the food isn’t good, people won’t go. They ran concessions in places that were dives but they were always busy. In their last years, they ran a food truck for a guy in a flee market and made more money working a weekend than I made working the full week.

      • alex in san jose says:

        Some of these lunch trucks are like that. The ones around my shop are not “gourmet” lunch trucks, they’re the kind where you might get the occasional fly in your food, hair, etc. I don’t patronize them. But one used to park right in front of my shop, and it took some doing to get them to stop doing that, because their customers would leave trash etc so I made a stink, took photos (typical morons – it really pissed them off being photographed in a public place) and called the police.

        I did some quick mental calculations and loitering in front of my shop for an hour was probably paying ’em $500 – $750 maybe more. No wonder it was so hard to run ’em off.

        And this was a shitty food truck. Imagine how well one might do that sells higher-end food.

      • 728huey says:

        There are a lot of bad restaurants, but there are a lot of chain restaurants that frankly are indistinguishable from each other except in name only. I don’t see any difference among Chili’s, Applebee’s, TGI Friday, Ruby Tuesday, etc. And there are others that have a slightly different theme but not enough to really stand out. Is Buffalo Wild Wings that much different than the restaurants I mentioned earlier? Even Hooters isn’t much different from the other restaurants other than the scantily-clad waitresses, and they even have similar competition in places like Tilted Kilt and Twin Peaks.

        I actually think it would be better in the long run if a lot of these chains went out of business, so that the surviving chains can actually improve, and more local hangouts can thrive. In this age of social media sites like Yelp and Trip Advisor where patrons are seeking out something different, this would really help the industry create a lot of niche restaurants that people will be excited to visit.

  3. Landrew says:

    I will refrain from using the word moron to describe eCONomists out of high regard for Wolf. However seeing and hearing the words, destroying everything creates growth annoys me to no end. ECONomists “Hurricanes are great for growth” they will begin to say shortly after the winds and hundreds of people die. The broken glass will be replaced and the magic miracle of growth will appear. There is no cost in the world of Broken Glass eCONomics. No one must bear the cost of replacement, more debt is all that is needed. Debt cures all rather then what the lessons of destruction SHOULD create, STOP living in a Hurricane zone! For the same reason Tesla survives, debt cures everything because we never learn. Harvey,Irma and Tesla are one in the same, magic instruments of growth. Sorry Wolf, I mean no disrespect to you, only your colleagues : ) I work in physics, the equation must be balanced or else bad shit happens because the universe will balance it for you and you don’t matter to the universe.

    • thelocalpragmatist says:

      “STOP living in a Hurricane zone”

      Excellent idea! Also, stop living in Tornado zones, Earthquake subduction zones, Tsunami zones, zones where exist prevalent forest fires and wildfires, floodplains, and areas of significant social dysfunction.

      • Wolf Richter says:

        In other words, stop living?

        • thelocalpragmatist says:

          Mr. Richter,
          No, in other words, understand that everyone is, at some point, and by some method, “up for grabs”…in harm’s way. There should be no opprobrium attached….

        • Wolf Richter says:

          I totally agree. My comment was very cynical. No matter where we live, there are risks. Nature does its thing, everywhere. I live in earthquake zone San Francisco. I used to live in Tornado Alley, including Wichita Fall in ’79. We just have to accept it when it happens and deal with the consequences.

      • Frederick says:

        The entire East coast as well as the Gulf coast is a hurricane zone Where do you expect all those people to live North Dakota?

      • michael w Earussi says:

        Or the government could just stop subsidizing them with cheap insurance. Therefore people can decide on their own where they can actually afford to live.

    • Rates says:

      eCONomists can lead the muppets to water, but the muppets will need to buy into the idea to drink.

      Remember, there are plenty of economists against debt too, but nah, gotta keep up with the Joneses.

      I was recently at a company townhall and our COO made this point: “I know so many people like Suzie Orman etc and at the end of the day after reading countless of books by these people and attending their seminars, there’s actually just one point: spend less than you earn.”

      The muppets, the muppets …. LOLOL

  4. Ambrose Bierce says:

    Its competitive marketing. the media helps promote the dining business. You’re not buying food, you’re buying the experience, which is why casual dining is food with a theme park atmosphere. The decline coincides with Amazons takeover of Whole Foods. The rules of the game are shifting, now you can organic dishes shipped to your home, is the theme park on the way out?

    • Mike G says:

      Maybe people are catching on to how insipid the ‘theme park’ experience is, and are now noticing the corporate micromanaged, cost-cut food isn’t very good.

  5. Gershon says:

    But…but…Paul Krugman and his fellow Keynesian propagandists assured us that massive destruction was bullish for the economy.

    • Jarhead John says:

      No spending money in restaurants for Krugman…I heard he’s a brown bagger…

      • Jarhead John says:

        OK—I’ll say it…..Baloney sandwiches every day…

        • alex in san jose says:

          Made me laugh!

          What did I shove in my pie hole today (yesterday I guess)?

          B’fast an avocado with seasoning and mayo. Lunch was raw walnuts with radishes. Radishes pair well with nuts because alone they’re too spicy, but back and forth between them and walnuts or pecans works great.

          Dinner was lamb sauteed with garlic and seasoning, and sauteed mushrooms. The lamb was only like $2.50 for a “shoulder chop”, just like the old “Road Kill Cafe” joke menu, cheap sheep.

          Restaurants are just not a part of my life these days. I’m sure my day’s eating was under $10, and frankly, I’m willing to spend a little more for the sake of my health. 20 lbs down from where I started, and had to change my belt because I was becoming that old guy with several inches of extra belt sticking out.

    • California Bob says:

      re: “But…but…Paul Krugman and his fellow Keynesian propagandists assured us that massive destruction was bullish for the economy.”

      Citation, please.

      I subscribe to the NYT and have read nearly every Krugman post for the last 15 years or so, and I don’t recall him every writing anything like this. What he has written is pretty obvious: When the affected home and business owners get the checks from their insurance companies or the government there will be an increase in spending, notably at places like Lowe’s and Home Depot. The re/construction industry will benefit as well, as will their workers. This will cause a (temporary) bump in the nominal GDP which, as others have pointed out, is zero sum in the long run. Krugman, to my knowledge, has never written, said or implied otherwise so, again, citation needed.

      You must be a monetarist, so you have to agree with the actions of the FED and our government for the last 30 years or so, correct?

      • Petunia says:

        Krugman is a major know nothing. For citations go read all his articles on truthdig.com. You’ll find some of my comments there too.

  6. joanrn says:

    This phenomena may be a good example of capitalism at work. If a product is good, at a good price, and meets a want/need, it will be bought by hard working citizens with enough money. If any of these requirements are not met the opposite occurs, and the product looses market share.

    People have to eat, they like to socialize while eating, and they want value for their hard earned money. These human traits have not changed. The chain restaurants are no longer meeting these needs.

    Quality has diminished, and is not a high priority for the chain restaurant businesses. I have recently had experience with chain restaurants that have been around since I was a child. They both were unable to provide simple warm breakfast food that was warm on my plate at the same time. Food is being made in regionalized factories then frozen and trucked to the individual locations. I am sure these two restaurant chains are not the only ones in the industry using this practice.

    The large chain restaurants must make changes to price or quality to stay competitive. Unfortunately, even automation will not make a difference if the savings from labor cuts is used to increase executive pay, and share holder dividends.

    • Dan Romig says:

      I agree with you joanrn, and quality diminished chain restaurants deserve to lose business.

      In the Twin Cities there is a vibrant restaurant scene driven by upscale chef-owned places that provide good food, value and experience.

  7. penfold dangermouse says:

    at many of these chains (and some indies), the “cooking” tastes like it’s merely the reheating of the Sysco menu.

    You can tolerate it a few times when you’re flush with cash. If you’re not, you either pay up for better food or opt for fast casuals/cooking in.

    Now can I charge $10,000 for my sector analysis? Smaklig måltid!

    • alex in san jose says:

      Heh-heh my local “genuine taste of Italy” coffee shops sells a damn fine microwaved Sysco quiche for $10-odd.

  8. Kreditanstalt says:

    Good grief. If an entire sector of the massive US consumer economy is noticeably affected by something as mundane (and unproductive!) as a TV SHOW, what does that say about resilience, fragility and REAL, needs-based demand?

    Something is really sick somewhere…

  9. Vespa P200E says:

    Been going to Applebees for supper as great deal on 2 for $20 or $25 – 2 entrees and appetizer to share. Use discounted gift card so another 10% off. Leave good tips as must be hard on the servers income with low food prices…

  10. michael w Earussi says:

    The aging of the country might also be having an effect. I can only speak for me but my tolerance for salty greasy food has diminished with age.

  11. Chris says:

    A quick Google reveals that it’s perfectly possible to have a home that is highly resistant to hurricane damage. I guess they cost a bit more.

    • Petunia says:

      After Hurricane Andrew houses in Florida are built of cinder blocks and are hurricane proof, they also come with hurricane shutters. Unfortunately the roofs are the weak points and the most expensive to fix, they can get badly damaged even during a minimal hurricane. The garage doors are also reinforced for hurricane winds. Even with these standards, nothing can withstand a cat 5 hurricane.

      • thelocalpragmatist says:

        “Even with these standards, nothing can withstand a cat 5 hurricane.”

        No, this is not necessarily the case. In my distant youth, I lived on Okinawa, in Officer’s Housing on Kadena AFB. The houses were of cement slab, cinder block, tile roofs (with hurricane ties) and shuttered windows. In ’58 or ’59, the Island was hit with the largest storm (Typhoon) on record…sustained winds over 200 mph. Much of the Island was leveled, but the cinder block homes in my neighborhood were undamaged.

        • Petunia says:

          A cat 5 will destroy even a newer house in Florida. The authorities will tell you that they cannot build to a cat 5 standard, it doesn’t exist. At that point you have to evacuate. Please don’t give people the impression they can be fine under those circumstances, because it is not true, and it may cause someone their life.

          I had a new house in FL and went through a cat 3. We had no flooding but the roof was damaged. This was the case with almost every house in the development.

  12. robert sinclair says:

    Capital destruction, (note the word DESTRUCTION) is the OPPOSITE (note the word opposite) of wealth creation.
    Capital equals PROPERTY.
    IF Property is DESTROYED, NEW CAPITAL is required to replace this destroyed property. This makes everyone poorer in the long run.

    If destroying property made people richer why not destroy everything like we’ve done to the middle east.

  13. Realist says:

    An interesting take on the topic of rebuilding:


  14. Gershon says:

    Slightly OT, but Irma has flooded Miami’s financial district. Can any INFORMED posters tell us what implications, if any, this will have for the markets? (In our Fed-driven Bizarro World, even massive destruction is bullish, so I’m wondering what actual impacts flooding of a financial hub might have).


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