Same-store sales growth
The two most important drivers of a restaurant’s top line are same-store sales and unit growth. Same-store sales growth is represented as a percentage. It measures the growth at existing stores or locations over a period of time—usually YoY (year-over-year). It excludes sales from new units that opened during the year. Same-store sales are driven by two factors—the number of customers walking into the stores and the average amount or average check that the customers pay for an order.
Food retail sales connection
Naturally, if the consumers are less burdened by interest rates, they have more to spend on other items including consumer discretionary goods and services (FXD). The federal funds rate impacts the interest rates. Earlier in this series, we saw how the federal funds rate impacts the food service and retail sales over time. We’ll discuss the food service and retail sales trend with the same-store sales growth of eight large restaurant players in the US.
The same-store sales growth of the eight major restaurant players in the US like Starbucks (SBUX), McDonald’s (MCD), Chipotle Mexican Grill (CMG), and Panera Bread (PNRA) closely followed the food service retail trade data. This shouldn’t be surprising considering that the food service retail sales data represent the sales data at food and drinking place retailers.
Rates increased in 2004
When the Fed increased the fed funds rate in 2004, the food service retail sales data also trended upwards. As we noted earlier, this is because the overall economy is improving. Currently, the food retail sales growth is already high at 8.6%—compared to its historic levels. So, the question of how high it can keep going remains a concern. More importantly, we can see that both the food service retail sales and the average same-store sales growth of the eight restaurants are trending downwards.
Next, we’ll discuss the expectations for the general business conditions and the same-store sales growth in the next six months.