What drives restaurant same-store sales?

In the last part of this series, we learned about same-store sales, the key revenue driver for the restaurant industry. You learned what same-store sales means, but to understand this, you also need to understand the drivers of same-store sales.

In the chart above, we see that same-store sales are driven by two factors: the number of customers walking into the stores and the average amount or average check those customers pay for an order.

The average check or ticket is driven by price and product mix. Prices of the menu items must be structured carefully to balance input costs and drive profitability without losing customers to the competition. Product mix, as the name suggests, is the mix of items offered on the menu so customers get what they want. The restaurant can also push additional items to increase the order mix.

For example, when you go to Chipotle Mexican Grill (CMG), you may intend to only order a burrito bowl, but at the checkout, you add side orders of chips and a beverage. These two additional items increase Chipotle’s wallet share and stretch the average check. Restaurants also offer combos, which cost less than purchasing the combo items individually. For example, a bagel with cream cheese and medium coffee combo at Dunkin’ Donuts (DNKN) costs $3.49. Purchased separately, the same items cost $3.78.

Consumer Discretionary Select Sector Standard and Poors depositary receipt (or SPDR) (XLY) includes Chipotle Mexican Grill (CMG) along with Darden Restaurants (DRI) and Starbucks (SBUX).

Traffic, or customer walk-in, is driven by several factors, including menu items, pricing, promotions and offers, and advertising. Advertising plays an important role in driving customers, but it is primarily supported by or overlaps the ticket components described above.

This helps us understand the reasoning behind restaurant advertisements revolving around menu innovation and pricing. Let’s look next at restaurants’ advertising expenses.