3 reasons why chain restaurants are struggling
America is losing its appetite for chain restaurants.
The health of the restaurant industry, as measured by the National Restaurant Association's Restaurant Performance Index, hit its lowest level since 2013, thanks to declines in same-store sales and customer traffic. Only 30% of restaurant operators reported same-store sales increases in the last year, and just one in three expect sales to grow in the next six months.
Overall, food service industry traffic has been flat the first half of 2016, according to data from industry research firm NPD Group, and is expected to remain weak for the rest of the year.
Here are the three things that executives at some of the biggest restaurant chains in the country are blaming for the industry's stagnation.
1. There's a lot of uncertainty about the election
CEOs across the industry are blaming Donald Trump and Hillary Clinton for sluggish sales.
On Thursday, Yum Brands CEO Greg Creed joined a number of other executives in pinning the blame for industry struggles on the upcoming presidential election.
"I think there's just great uncertainty as to what's going to happen in the US, in particular, as a result of the outcome of the election," Creed said in a call with analysts. "It goes without saying that people are sort of trying to decide who to choose and what the impact will be on the economy. And I think people maybe [are] just hunkering down a little bit."
Wendy's CEO Todd Penegor said in August that uncertainty about the election was leading customers to spend less freely.
Starbucks CEO Howard Schwartz, who endorsed Hillary Clinton, has a similar take, though he argues that the uncertainty is bigger than the election.
"I think we have a situation where you have a very uncertain election," Schultz said in a call with analysts in July. "You have domestic civil unrest with regard to race. And I think the issues around terror have created a level of anxiety... There are a number of things that we are facing as citizens, and I think the direction of the country."
See the restaurants Americans are flocking from: See Gallery
2. There are too many restaurants
On Tuesday, Gene Lee, the CEO of Darden, which owns Olive Garden and Longhorn Steakhouse, blamed the industry's struggles on the sheer number of dining establishments in the US. According to Lee, more restaurants need to close to allow Olive Garden and other chains to thrive.
"I'm hoping that more inventory will come out of the system," said Lee. "If you drive down the road you're starting to see more restaurants closed... We could use some inventory to come out. That would be helpful."
Dealing with too many locations is a common issue in the retail industry. Last August, Macy's CFO, Karen Hoguet, said in an earnings call that "this country is over-stored, given evolving customer shopping habits."
Essentially, when there are too many locations of a certain type of business — whether it be fast-food or apparel — it's difficult for any chain to thrive.
It's a problem that's further complicated by the fact that Americans are gravitating towards small chains and independent restaurants. There are more restaurants in the US than Americans actually need — and then, when they do go out, they're visiting local options instead of major chains.
3. Grocery store prices are too damn low
Some say that because grocery costs are so low, people are choosing to eat at home more often.
"If I'm not mistaken, it's the biggest gap we've seen [between food at home and food away from home] in the last 10 years," McDonald's USA President Mike Andres said in August. "This is clearly impacting the whole eating out industry."
A week later, Wendy's CEO echoed Andres, saying the widening gap between prices of food at home and food served in restaurants meant companies needed to provide customers with new reasons to eat out.
Grocery stores are eager to take advantage of dissatisfied restaurant customers. Chains such as 365 by Whole Foods are adding more prepared food and in-store restaurants.
In-store dining and prepared foods from grocery stores led to 2.4 billion food-service visits and $10 billion of consumer spending in 2015, according to a recent report by industry research firm NPD Group. That's an increase of nearly 30% since 2008.
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