Price Is Carrying Fast Food. Visits Are Not.

Placer.ai reported on October 12 that quick-service restaurant visits fell 2.2 percent year over year in September. That was better than August's 3.7 percent drop. It was also the seventh monthly decline in a row. In the same month, per Placer.ai, fast-casual visits grew 2.2 percent and full-service visits grew 1.0 percent.

Our position: quick service is holding its sales line on price, not on customers, and a pad earns its value from customers. A pad that only works for one kind of quick-service building is underwritten to the segment losing visits this year. We would lay out pads that a fast-casual or sit-down user can also take, and we would check what a quick-service tenant's sales growth is made of before we lean on it.

What the numbers say

Restaurant Business reported on October 14, citing Revenue Management Solutions, that quick-service sales rose 0.6 percent in the third quarter while traffic fell 2.6 percent. Fewer people paid more per visit.

The same report, citing federal data, put September menu prices at limited-service restaurants up 3.2 percent from a year earlier. Grocery prices were up 2.5 percent. Hourly wages were up 3 percent. Restaurant Business described the result as a 0.7 percent drop in consumer spending power over the year.

Placer.ai adds one more pressure. Gas prices topped $4.45 a gallon in September. The firm suggested quick service's more price-sensitive customers may be cutting restaurant trips as fuel squeezes budgets and eating out gets more expensive relative to eating at home.

Why it matters for the dirt

Rent is paid out of sales. The corner earns its value from visits. When a category's sales hold up only because each check is larger, the cushion under the rent is thinner than the sales line suggests.

The segment split matters as much as the total. Per Placer.ai, September's visit growth went to fast-casual and full-service restaurants. A pad drawn around one drive-thru prototype has fewer possible users in a year like this one. A pad with parking, frontage and a layout that can take a pickup window or a full lane keeps more of them in play. That is a design choice, and it gets made before the first lease is signed.

None of this says quick service is a bad tenant. It says the sales line alone is not the number to underwrite this year.

What we watch for

• What the comps are made of. When a quick-service release says transactions declined and price made up the difference, the transaction line is the one we read.
• Whether the visit decline keeps narrowing. Per Placer.ai, the drop went from 3.7 percent in August to 2.2 percent in September. Another month of improvement would be the first sign the price-led stretch is easing. A reversal would say it is not.
• Fuel. Placer.ai noted fuel prices starting to ease. If its read on price-sensitive customers is right, we would expect quick-service visits to respond as the pump does.
• Who else can use the pad. Before we commit to a layout, we want to know that at least one tenant outside quick service could take the site as drawn.

One month of visit data does not reprice a pad. Seven months in a row is a pattern worth designing around.