Economy Watch: Low Energy Prices Boost Restaurant Sector

More jobs and lower gas prices: that’s a recipe for the chain restaurant sector to do better.

More jobs and lower gas prices: that’s a recipe for the chain restaurant sector to do better, and by extension their current and future landlords to do better, as chains expand. Last year ended on a on a high note for the chain restaurant industry, with December recording the best same store-sales in three years, and the fourth quarter turning in the best same-store sales results in six years, according to Black Box Intelligence data. Black Box produces its Restaurant Industry Snapshot as a compilation of sales and traffic results from more than 190 Designated Market Areas representing more than 110 restaurant brands and over 20,000 individual locations. Data is reported in five distinct segments: casual dining, upscale/fine-dining, fast casual, family dining and quick service.

These latest results contributed to an aggregate growth of 0.8 percent for 2014 for the restaurant business, Black Box noted. That might not sound like much, but it’s a vast improvement over the 0.1 percent contraction suffered in 2013 by the industry. Also, last year’s growth probably would have been even stronger, but for the miserable winter weather in the first quarter that kept a lot of people home. During the other three quarters of the year, same-store sales grew 1.3 percent, the report explained.

Though the report doesn’t specify which restaurant sectors or brands (and their landlords) will do better because consumers are shoveling less money into their gas tanks, it’s entirely possible that lower-end eateries will benefit more. That’s because lower gas prices function as a progressive tax cut would: lower-income households spend an inordinately high percentage of their incomes on energy, and so lower prices would have a disproportionally larger impact. According to a report by Bank of Amercia Merrill Lynch, households with incomes of less than $50,000 a year spent about 21 percent of their after-tax income on energy in 2012, an increase from 12 percent in 2001. Those with more than $50,000 in annual income also spend a fair chuck, but not as much: 9 percent in 2012, up from 5 percent in 2001.

Much of the fast food segment is indeed doing better, as of the early weeks of 2015. Early in January, for instance, Sonic posted an 8.5 percent increase in same-store sales for the fourth quarter, more than double the consensus estimate, and a result that will probably put even more wind in the sails of the company’s growth plans–opening 50 to 60 new franchise drive-in openings in fiscal 2015. Other fast- and fast-casual brands that are doing well recently are Popeye’s, Texas Roadhouse, Papa John’s, Cheesecake Factory, Buffalo Wild Wings, and Darden Restaurants. A sustained drop in energy prices will help all these open more locations in the coming year, not only because of higher spending, but also lower costs. On the other hand, lower energy prices are just one factor affecting restaurant sales, and not every brand is doing better. Just ask McDonald’s, which has turned in a poor showing in its latest quarterly numbers.