June 14, 2018

Mostly Positive Restaurant Outlook Could Bode Well for Cheese

 |  By: Fran Howard

Consumers ate out a little less often in May than they did in April, but they also spent more when eating out. Despite the slight slowdown in restaurant traffic in May, the six-month outlook for restaurant sales remains positive, which could bode well for cheese demand. 

“In recent years, food service demand has been the primary driver behind higher year-over-year cheese consumption, making restaurant sales a good indicator of how cheese consumption could fare in the coming year,” notes Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle.

According to recently released data by TDn2K, which is based on weekly sales from more than 30,000 restaurant units, month-to-month restaurant sales have been flat to higher for three consecutive months, and year-to-date sales are also positive following two years of 1% declines. 

In addition to the TDn2K data, the National Restaurant Association released data for April that showed the restaurant performance index (RPI) at 101.3 fell 0.5% below the March 2018 index. “The lower RPI was the result of softer sales and lower foot traffic through restaurants,” Dorland says. “With restaurant sales a bit slower than in prior months, the market will have to keep an eye on whether same-store sales and foot traffic improve over the summer. A slowdown could be problematic for dairy—especially cheese.”

On the positive side, sales at fast-casual restaurants rose 2% in May compared with a year ago, which is a significant turnaround after two years of declining sales. “Breakfast and late-night dinners are helping to drive consumer traffic, with sales during these periods up 1% vs. the prior year,” Dorland notes. “Higher consumption of breakfast is good for dairy because many of these meals include cheese.” McDonald’s, for instance, tops its iconic Egg McMuffin as well as seven other breakfast sandwiches with a slice of American cheese. 

The National Restaurant Association’s current situation index, which measures foot traffic, labor, same-store sales, and capital expenditures, fell 0.9% in April to 100.5, compared to March levels. “While the index was lower, it remained above 100, suggesting the industry is still in an expansionary phase,” Dorland notes. Another metric, the expectations index, looks at the same measurements as the current situation index, only six months into the future. The expectations index dipped 0.1% in April to 102.1, but the outlook for restaurant sales looks positive, with 27% of restaurant operators viewing the U.S. economy favorably, according to the National Restaurant Association.

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