Casual dining investors, despite the retail route, have become increasingly optimistic over the past month and a half with several of the largest names in the industry rallying 15-20% into the holiday season. 

As TDn2K points out, part of the optimism is attributable to a recent “acceleration” in average check size across the restaurant space with comps up 2.4% in November and 2.5% in October.Despite many brands focusing on price promotions to drive sales and traffic amid a decline in mall/retail foot traffic, both figures are higher than the 2.0% check growth experienced the first nine months of the year.

On the other hand, strong pricing has been completely offset by abysmal traffic comps resulting in overall flat sales comps. As TDn2K notes, rolling 3-month traffic comps declined 2.5% in November across the United States, with the Midwest market fairing the worst at -4.1%.

Meanwhile, these steadily declining traffic comps in 2017 compound on lower traffic experienced in 2016 as well.

Restaurant traffic down 2.5%, rolling 3 month traffic down 2.8%. This compounds on -3.3% traffic a year ago. #restaurantrecession https://t.co/OlrYxTm8GP

— Greg S., CFA (@GS_CapSF) December 8, 2017

Of course, the key question that arises from all this is why restaurants continue to hike prices even as customers are clearly rebelling against them? 

As it turns out, to our complete shock mind you, the answer to that question just might lie in those ill-advised minimum wage increases that we’ve been warning about for years. With the minimum wages in California, for example, set to rise roughly 10% per year for the next 5 years, restaurants are increasingly trying to offset those increases in price hikes.

“Our concern is that these improved trends come despite the fact that the industry has not cracked the code on declining guest visits,” commented Victor Fernandez, executive director of insights and knowledge for TDn2K. “Brands have come to rely on rising checks to overcome the steady loss of traffic.” Same-store traffic dipped -2.5 percent in November, a 0.9 percentage point drop from October. It’s been almost three years since restaurants experienced a month of positive guest counts.

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