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Dining out: US restaurant sales growth drops below retail gains in December 2019

Year-over-year sales at U.S. bars and restaurants grew in December 2019 but at a slower pace than the growth in the broader retail sector, according to government data.

Food services and drinking places added more workers in December at a greater rate than overall retail employment gains and menu inflation continued to rise. Meanwhile, share prices for most of the 15 largest publicly traded U.S. restaurants by market capitalization rose in the month ended Jan. 16.

Sales gains continue

Food services and drinking places grew 4.9% from the year-ago period in December to a seasonally adjusted $65.09 billion, according to U.S. Census Bureau advance monthly sales estimates released Jan. 16. The category includes bars, restaurants such as McDonald's Corp. and Starbucks Corp., caterers and other food service vendors.

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December marked the first time since August that sales at restaurants and bars had slower year-over-year growth than overall retail sales, according to an S&P Global Market Intelligence analysis.

All retail sales grew 5.8% from the year-ago period in December, up from the 1.5% sales growth seen in December 2018. Economists said retail gains were bolstered by the holiday shopping season's sales growth and two days of the Thanksgiving shopping weekend falling in December.

An easier year-ago comparison supported December's sales growth for restaurants and those gains are expected to accelerate in the near term, said Jake Bartlett, a SunTrust Robinson Humphrey analyst, in a Jan. 16 report.

In November, food services and drinking places grew 4.7% from the year-ago period to a seasonally adjusted $64.96 billion on a preliminary basis, down from a previous estimate of 5.1% year-over-year growth. Sales growth for October was revised further down in the Census Bureau's latest figures to 5% year-over-year growth from a previously revised estimate of 5.1%.

Plant-based foods and delivery continued to draw attention from the restaurant industry in December through mid-January. While it called off a supply deal with McDonald's, plant-based foods maker Impossible Foods Inc. said Jan. 7 that it was partnering with Restaurant Brands International Inc.-owned Burger King on a plant-based sausage patty. Burger King already offers the Impossible Whopper, a plant-based burger.

On the delivery front, Grubhub Inc. on Jan. 9 denied media reports it was exploring a sale as food delivery companies face pressure on profits amidst a crowded field of operators.

YUM! Brands Inc. on Jan. 6 also announced that it will buy Habit Restaurants Inc. for $375 million. The deal will add The Habit Burger Grill brand to a portfolio that includes KFC, Taco Bell and Pizza Hut chains.

Labor force grows

Restaurants and bars continued to add jobs at a quicker pace than the broader economy in December.

Food services and drinking places added 15,900 employees in December for a seasonally adjusted total 12.3 million, up 2.2% from a year ago, according to the U.S. Bureau of Labor Statistics, or BLS.

Total nonfarm industries added 145,000 employees in December for a total of 152.4 million workers, up 1.4% from the year-ago period. The unemployment rate was unchanged in December at 3.5%.

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Steady menu inflation

Prices for the "food away from home" subcategory of the consumer price index, which measures the costs of everyday goods, grew an unadjusted 3.1% for the 12 months that ended in December, according to the BLS. "Food away from home" covers the average prices for meals ordered at eateries.

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The consumer price index, or CPI, for full-service meals grew 3.3% over the last 12 months and the index for limited-service meals increased 3%. The full-service meals category includes restaurants where patrons are waited on at their tables, and the limited-service category covers eateries where people pay for their food up front.

The "food at home" subcategory of the CPI, which refers to average prices at grocery stores, grew 0.7% in the 12 months through December.

Restaurant stocks

Twelve of the 15 largest publicly traded U.S. restaurants posted stock gains in the month ended Jan. 16, while share prices fell for the three other companies, according to Market Intelligence. More broadly, the S&P Composite 1500 Restaurants subindex grew 3.9%, and the S&P Composite 1500 index grew 4.6%.

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Shake Shack Inc. posted a 19.4% share price increase in the month ended Jan. 16. The New York-based burger chain could launch a veggie burger as the Shake Shack pursues menu innovation, SunTrust Robinson Humphrey's Bartlett said in a Jan. 14 report. In November, Shake Shack announced it was partnering with Grubhub on nationwide delivery.

"We continue to see some near-term risks, given the impact of the delivery transition, but are incrementally more positive given color on product innovation," Bartlett said.

Shares in The Wendy's Co. fell 2.7%, the biggest decline among the top publicly traded restaurants during the month ended Jan. 16. Wendy's is preparing to offer breakfast options this year and new items are likely to help increase sales, Stephens analyst Will Slabaugh said in a Dec. 2, 2019, research note.

"With a low breakeven, high-quality signature items, significant incremental marketing spend, and strong franchisee buy-in, we look for breakfast to finally become a real daypart for Wendy’s in 2020," Slabaugh said.