U.S. restaurant sales grew in the second quarter at their slowest pace since December 2009. As restaurants start reporting third-quarter results this week, investors should expect to see the pain continue.
For one thing, customers are finding it's getting more expensive to eat out. Restaurants are hiking menu prices to keep up with rising minimum wages and other costs .
Aside from the 2008 recession, the last time the gap between the cost of eating at home and eating out was this wide was in 1981.
Lunch-time crowds, which make up a third of all restaurant traffic, are thinning out as more people work from home, while others take advantage of low grocery prices to pack their own lunches.
Many millennials, who had been among the most-frequent restaurant customers, are cutting back, according to industry research firm NPD Group.
A new crop of meal-delivery services such as Blue Apron and Hello Fresh are expected to rack up more than $10 billion in annual sales by 2020, helping make home-cooking cool again.
Despite declining sales, restaurant chains are building faster than the U.S. population grows, leading to oversupply.
That's eating into profit margins.
It's also leading to a lot of restaurants going bust -- fueling the highest number of bankruptcies of public and major private restaurants since 2011, according to New Generation Research.
But as industry sales slow further and competition heats up, even they will have to fight for growth.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Generally, labor costs make up around 30% of restaurant sales compared with 12% to 14% of grocery stores, estimates Nomura analyst Mark Kalinowski.
Restaurant traffic break down: Lunch is 33%, dinner is 30%, breakfast is 22%, and snacking/late night is 15%, according to NPD.
NPD reports lunch visits are down 7% from last year, the biggest drop since the recession.
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