The Grinch That Stole Christmas

Going into the mid-December holiday homestretch, most CEOs were wondering whether their casual dining concepts were going to kick butt with holiday sales, or get their butts kicked. They were pessimistic, but hopeful. The hope was short lived.  Most got their heads handed to them (switching body parts in mid-paragraph). I spoke with a steakhouse CEO over the weekend who said, from what he could tell, those concepts most dependent on holiday parties, primarily booked by businesses, were hurt the most. Businesses were just shutting down all spending toward year end.

Our industry has many parallels to the retail industry, except when their inventory goes old or stale. They can still sell it at some price. Thomas Weisel Partners has just issued their 2008 Post-Holiday Sales Report and 2009 Outlook. I have excerpted passages about retailing that seem relevant to helping understand restaurant sales trends for the same time period. Many restaurants are located in or around shopping areas and “poach” off of the traffic that these retailers generate. A bad sales period for them is often a bad sales period for us. We are also affected by the same record low consumer confidence levels that they are.

Here is the Thomas Weisel report:

Black Friday showed signs of early success, but sales tapered off over the weekend
 

·         Discounting drove consumers who were looking to complete more of their holiday shopping earlier in the season to take advantage of the deals available

·         Retailers discounted heavily, including 40-70% from luxury retailers, who historically have been recession-proof

·         Black Friday weekend sales rose overall by 1.9% versus last year

Overall holiday sales were worse than expected with a 2.3% decline and traffic down 16%–many consumers are “on strike”

·         Retail spending was impacted due to only four calendar weekends after Thanksgiving

·         Higher rates of cash purchases versus use of credit cards due to lending environment

·         Consumers limited their gift and self-consumption purchases to “must have” items–“one then done” mentality

·         The late surge of shoppers that was expected by retailers never came, as consumer sentiment was overwhelmingly suppressed

·         Retailers experienced a higher level of returns, as many consumers want cash–expect post-holiday returns to increase by 17%

                                                 Y-O-Y Holiday Sales Performance

                                                eCommerce                         (2.3%)

                                                Footwear                            (13.5%)

                                                Men’s Apparel                     (14.3%)

                                                Furniture                             (20.0%)

                                                Luxury (excluding jewelry)    (21.2%)

                                                Women’s Apparel                (22.7%)

                                                Electronics                         (26.7%)

                                                Luxury (including jewelry)     (34.5%)

Value-seeking shoppers headed toward mass merchandisers over specialty retail during the holiday season

• Consumers have been shifting away from specialty retail due to changing consumer demands and pricing pressure. The luxury segment was the hardest hit (down 34.5% including jewelry).
• The electronics sector was also one of the worst performers, down by 26.7%, despite the success of Wii at Wal-Mart and GameStop
• Online sales were slower than expected, down just 2.3%, boosted mostly by heavy discounting–the first ever decrease in holiday online sales

Gift card sales fell approximately 12% this holiday season as consumers bought fewer cards and with less value

·         Purchasing heavily discounted items pre-holiday made more sense than redeeming in January for full-price items

·         Consumers were concerned that specialty retailers will close or go bankrupt before cards can be redeemed; so purchases shifted to mass merchants or card companies

·         January sales results expected to be low as a result of less dollars being spent on gift cards and more self-consumption occurring in December

So there you have it. Many similar trends with our industry, especially as you get into family dining and above. Customers are hyper-cautious with their money and are motivated by unusually strong deals (think buy-one-get-one, not buy one, get a free dessert), brands with strong value, and brands that do not disappoint. And sometimes what they are looking for are all three of these qualities rolled up into the same brand.

Get used to a different customer spending paradigm. This one might stay with us for a while. If you want the Grinch to take a hike, rediscover what compelling value means for your concept.