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Gas prices, breakfast lift family-dining sales

Bruce Dean has noticed a pattern in the 20 years since he and Bob Manley founded their family-dining concept Black Bear Diner.

“When gas prices are low like this, we get a kick up in volume,” Dean said. “When they get sky-high, we notice people stop coming in as much.”

Business has been good for Black Bear, a 63-unit chain based in Redding, Calif. With gas prices 16.5-percent lower than they were a year ago, the chain’s same-store sales rose more than 6 percent in October, Dean said.

But Black Bear isn’t alone. The family-dining segment appears to be in the midst of a renaissance — or at least having a strong year. Several publicly traded concepts have recently reported positive sales.

IHOP’s same-store sales have been positive for six straight quarters. In the third quarter, its same-store sales increased 2.4 percent. Denny’s saw same-store sales at corporate units grow 4.1 percent in its third quarter. And comps at Nashville, Tenn.-based Cracker Barrel rose 3.3 percent in its first quarter ended Oct. 31.

These operators have also flourished on Wall Street. Denny’s Corp.’s stock hit $10 a share on Thursday for the first time since the late 1990s. Both DineEquity Inc., parent to IHOP, and Cracker Barrel Old Country Store Inc. recently established all-time highs.

Investors also bid up stock in Bob Evans Farms Inc. Tuesday to a new 52-week high. But Bob Evans reported flat same-store sales for its second quarter, and investors started selling. Its stock fell 14 percent Wednesday.

Gas prices and improving disposable income “are having an impact,” DineEquity CEO Julia Stewart said on the company’s most recent earnings call.

“There’s just this sense that things are getting better,” she said.

The average price for a gallon of gas has fallen to $2.73, according to AAA, 24 cents lower than it was a month ago. Gas prices are 53 cents per gallon lower than at this time last year. Lower gas prices boost disposable income, which has a direct impact on restaurant sales.

Gas prices affect many restaurants, but particularly family dining, because the segment’s customer base has lower incomes. Lower gas prices benefit those consumers more than upper middle class and wealthy consumers.

“Our demographic is average American, good working people,” Black Bear’s Dean said. “Money has been tight traditionally. Wages are relatively flat. But if gas prices go down 30 percent, you just got a raise. It’s been good for us.”

Lower gas prices also encourage people to drive more, benefiting chains like Cracker Barrel, with locations along highways and which directly targets travelers. “The correlation we see strongest is miles driven, which of course is connected to gas prices,” Cracker Barrel CEO Sandra Cochran said on the company’s recent earnings call.

Employment growth is also important, and Denny’s CEO John Miller suggested that jobs improvements have benefited the chain.

The unemployment rate has been falling slowly but steadily since hitting a peak in October 2009, from 10 percent that month to 5.8 percent in October 2014. The economy is adding about 200,000 jobs a month, according to federal data. That pace likely kept up in November. The human resources firm ADP said this week that private employers added 208,000 jobs during the month.

Meanwhile, consumers are eating more breakfast, a strength of family dining. According to The NPD Group, traffic at family-dining restaurants in 2013 grew 3 percent, while traffic at lunch and dinner across all segments fell.

“Breakfast is hot right now,” said Mark Smith, analyst at Feltl & Company. “People want to be in multiple dayparts with a strong breakfast.”

Breakfast generally has lower food cost requirements for restaurants, making it a good daypart.

For Black Bear, breakfast menu items are popular even well after the morning meal supposedly ends.

“Eight of our top-20-selling items at lunch are breakfast,” Dean said. “It’s good for us. Food costs are good at breakfast. And customer satisfaction is very high.”

Contact Jonathan Maze at jonathan.maze@penton.com.
Follow him on Twitter: @jonathanmaze