Burger King on Thursday became the latest restaurant to report slowing sales growth, sounding another warning bell for the entire restaurant industry.
Same-store sales at the burger chain increased just 0.6% in the quarter, driven largely by weakness in the US Canada, where comparable sales fell 0.8%.
The results are particularly troubling at a time when Burger King has been introducing new menu items, including hot dogs and Mac ‘n Cheetos, said Neil Saunders, CEO of retail consulting firm Conlumino.
“The softness in the US market is disappointing given the initially positive reaction to menu changes and the introduction of hot dogs,” Saunders wrote in a note to clients. “In our view, it underlines the fact that menu change and innovation is not now something that can be done periodically: fast food players need to see this as a constant process that has to be supported by ongoing promotions and marketing activity.”
Burger King’s performance is further evidence that Americans are choosing to pack their lunches and eat dinner at home versus visiting restaurants.
McDonald’s, Yum! Brands, and fast-casual chains like Habit Burger have also reported sales slowdowns.
In fact, same-store sales have been so lacklustre this year that one Wall Street analyst thinks that they may be a “harbinger” for a US recession next year.
In a recent note to clients, Stifel analyst Paul Westra said that the slowdown “reflects the start of a US restaurant recession,” and that it “may also represent a harbinger to a U.S. recession in early 2017.”
“Restaurants have historically led the market lower during the three-to-six-month periods prior to the start of the prior three US recessions,” he wrote.
Restaurant chains have been discounting like crazy to draw in customers.
Habit Burger CEO Russ Bendel called the promotional activity “unprecedented” in a call with analysts this week.
“Without question the amount of discounting and aggressive promotional offers both below us and above us… feels like it’s heavier than it was in 2008 and 2009,” he said.
Despite the promotional activity, it’s still cheaper to eat at home.
“There is a widening gap between food away from home and food at home, where the commodity decreases are being passed through by the grocers,” McDonald’s CEO Steve Easterbrook told analysts on a recent call with analysts. “So the food at home, there’s value to be had for families there, whereas eating out, there is a price-inflation environment.”
McDonald’s USA President Mike Andres also brought it up at a meeting with reporters at the company headquarters in Oak Brook, Illinois this week.
“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,” he said. “This is clearly impacting the whole eating out industry,”
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