There's a very simple reason the restaurant industry is in trouble

pulse

May 18, 2017 3:39 PM

The core problem in the restaurant industry may just be a simple question of supply and demand.

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As restaurants across the US struggle to boost sales, experts have been seeking answers. Is the problem cheaper groceries? Political uncertainty? Changing millennial tastes?

All of these reasons have been floated in the past year by executives and analysts.

But the core problem may just be a simple question of supply and demand.

"Restaurants same-store sales slowed at a greater pace than total sales in 2016," Credit Suisse analyst Jason West wrote in a note Thursday. "This suggests unit growth (supply) is outpacing sales growth (demand)."

The case that supply is outpacing demand was further bolstered by a comparison between overall restaurant traffic and same-store traffic. While more people are visiting restaurants in the US than ever before, on average, individual restaurants tracking their traffic year-over-year have seen declining figures.

"We believe there is an oversupply of restaurants out there," Victor Fernandez, the executive director of insights for the restaurant-industry tracker TDn2K, told Business Insider.

Concerns that there are simply too many places to eat out have swept the industry. Executives at restaurant chains including Starbucks and Darden, Olive Garden's parent company, have said the US is "over-retailed."

According to Credit Suisse, industry same-store sales have been roughly flat over the past year, the weakest they have been since the recession. At the same time, restaurant-industry sales grew by 4%, reaching roughly $520 billion, and unit count increased by 1.2%, with roughly 640,000 restaurants open in the US at the end of 2016.

Credit Suisse analysts say the same-store-sales slump will most likely continue until there's a major economic change or new restaurants stop opening with such frequency. People are spending more than ever on eating out — there are just more options to choose from.

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