Why Are Chain Restaurants Losing Foot Traffic?

Exterior of Pizza Hut 

Exterior of Pizza Hut 

Unfortunately, some major players in the industry have had a tough 2016.

Cosi just filed for bankruptcy and YUM Brands (the parent company of Taco Bell, KFC and Pizza Hut) just announced a sales decline at Pizza Hut.

“The US market was influenced by an unsuccessful promotion and the competitive environment,” said Greg Creed, CEO of YUM Brands.

Sonic drive-in is also not performing as its executives and investors hoped. “The shortfall was largely driven by lower-than-expected traffic, reflecting lower consumer spending in restaurants and continued aggressive competitive activity,” said Cliff Hudson, CEO of Sonic in a press release.

Both of these executives have said their chains are under major pressure from the competitive landscape, meaning other emerging concepts are taking away their customers.

But for some established brands, trying to attract the distracted consumer is the least of their worries. Chipotle, for example, is in full-on recovery mode. The “fresh mex” chain sales have drastically declined due to its food safety crisis, specifically, the brand saw sales decline by 27% for the first half of the year.

So what is costing consumers to not visit these establishments as much? Well, one contributing factor is that commodity prices are down. So eating at home is more appealing to consumers, especially as “food away from home” is on the rise according to this study. Even though lower food costs is also a good thing for restaurants, promotional costs evidently have increase to compete in the market.

The increase in wages has also attributed to the sales decline.

Wage inflation rose by 5% in July, according to William Blair Research. 12 states have increased their minimum wage this year. California, the largest restaurant state experienced a 11% spike in wages from $9 to $10. Read more