One quarter down for 2023 and we still don’t have a whole lot of certainty about the macroeconomic picture and its implications for the restaurant industry. Our crystal ball has displayed mixed signals for months (here and here, for instance) and there aren’t many indicators that’s going to change anytime soon.

What’s mixed, exactly? Well, on one hand, labor is improving for the industry and consumers have proven their willingness to access restaurants despite relentlessly higher menu prices. On the other, customers are getting anxious about bank turmoil and layoffs and higher interest rates and are continuing to pull back on discretionary spending. A recession is yet to be declared, though several signs are pointing aggressively in one’s direction.

“My view is that 2023 will still be bumpy. I think we’re adjusting to a new normal and I wouldn’t say the new normal is completely flat yet,” Torchy’s Tacos CEO/founder Mike Rypka said in an interview this week. “We’re faced with a hard economy right now. If we’re not in a recession, we’re talking ourselves into one.”

Still, consumers have to eat, and food-away-from-home continues to trend at a lower inflationary clip than grocery. As such, according to new data from Circana, restaurant traffic was up by 2% in February versus February 2022. New data from the National Restaurant Association also shows that 51% of operators reported higher customer traffic in February.

However, consumers seem to be accelerating their trade down activity that started picking up late last year. Quick-service restaurants enjoyed a 3% traffic uptick, for instance, while visits to full-service concepts dropped by 2% year-over-year. Further, lower check breakfast and morning snack dayparts have fully recovered from pandemic losses, according to Circana. Morning restaurant visits grew by 10% versus last year and are up by 2% versus February 2020. Conversely, lunch visits were slightly down, at negative 1%, while dinner traffic was down by 3% in February.

And, higher-check full-service dinner visits – the segment’s busiest daypart – declined by 13%.

“We’re seeing strong customer traffic at breakfast and morning snack, which means consumers are looking for convenience and portable meals and snacks,” David Portalatin, Circana food industry advisor said in a statement. “On the other hand, dinner and lunch visit growth has been slower due to home-centric behaviors being stickier at these dayparts. At lunch, consumers have other choices, including bringing items from home or going to a workplace cafeteria, offering subsidized pricing or no-cost options. Additionally, the higher average check for lunch and dinner may make them less appealing to some consumers.”

Consumers also appear to be reining in the frequency of their restaurant visits. A new survey from Revenue Management Solutions finds that the number of respondents visiting restaurants more often decreased sharply from Q4 2022 to Q1 2023. In the quick-service segment, 21% of respondents said they have ordered “more” or “much more” frequently in Q1, versus 29% in Q4.

Another major sign the trade down continues? Delivery was the lowest performing revenue channel in the industry in Q1, according to RMS, dropping from 57% in Q4 2022 to 44% in Q1.

Price increases are driving this shift, RMS reports, with three in four respondents acknowledging they’re paying higher restaurant prices. The impact is being felt across demographics – higher-income respondents that reported spending more at restaurants fell to 37% in Q1, from 73% in Q4.

Those price increases have remained above 8% throughout the past several quarters as restaurant operators work to protect their margins amid an inflationary environment. Though it may be impacting traffic in some dayparts and frequency, new data from the National Restaurant Association shows a significant year-over-year improvement of sales; total eating and drinking place sales in January and February were more than 19% above the first two months of 2022.

Consumers’ continued willingness to spend through an inflationary environment has created optimism for most operators, with six in 10 predicting that sales will be higher in six months. Operators have also experienced some financial relief in recent months, as the cost of certain food commodities continues to trend downward.

“The restaurant industry’s growth remains on track, driven by resilient consumers and a healthy labor market,” Bruce Grindy, chief economist for the National Restaurant Association, said in a statement. “While the path forward won’t be without challenges, we expect the industry to continue on a positive trajectory in the months ahead.”

A positive trajectory despite challenges – if we were to pick an overarching theme for the industry at this moment, this one might fit best.

Contact Alicia Kelso at [email protected]