Name: BBI State of the Restaurant Industry Q4 2026
Uploaded: 2026-10-27T19:16:31.464Z
Duration: 1 h 1 min 16 s
Description: BBI State of the Restaurant Industry Q4 2026

Transcript for "BBI State of the Restaurant Industry Q4 2026": Hi, everyone. Welcome to our last quarterly state of the industry webinar for 2026. We really appreciate you taking the time to be here with us today. I'm Amy Valentine, our VP of customer success here at Black Box Intelligence, and I'll be your host for today's webinar. I'd also like to introduce our presenters and two most senior analysts, Victor Fernandez, who's our chief insights officer, and Philip May, our director of insights and analytics. Today, we're gonna walk through our latest trends that we're seeing across financial performance, workforce dynamics, and guest sentiment. Before we get started, I wanna make sure you know a couple of administrative items. If you have questions during the presentation, Michael Borman is backstage ready to answer those in our Q and A chat. You can also see on the right hand side, we have a poll that we'll be, coming back to later throughout the presentation, but if you'd like to go ahead and answer that now, feel free to do so. We also have a get demo button there in the top right of your screen. If you'd like to take a look at survey studio, one of our guest feedback platforms, or wanna dig deeper into anything you see today, go ahead and click on that, and someone from our team will be happy to follow-up, walk you through it, discuss how we may be able to help you with our... With any of your current business needs. And then lastly, we will be sending a copy of the slide deck as well as the recording out to all of our customers that registered for today's event. So let's take it our jam packed agenda. We're gonna start with sales traffic and the macro environment, head into what's the voice of the customer saying and what we have determined matters most. And then we'll take a look at workforce trends and finish up with the last two, looking at our forecast, what we're expecting for the industry in 2027, as well as what we're seeing top performers doing differently. Yep. So with that, I will hand it off to Victor to get us started. Thanks, Amy, and thank you all for joining us this afternoon. We always appreciate you taking the time, to be in here with us. So we're gonna start where we usually start and look at what's happened with sales and traffic to the the 30,000 view to begin with, and this is, the... That view. We're looking at everybody that we track, from quick service to fine dining. Every single restaurant that's in our dataset will be represented here. The reason we start there is to kinda get a sense of how is the industry, performing and how are guests reacting to what's happening around them, right, the environment, the economy, all of those different things. And Philip and I were having a chat here a few minutes ago, and we're all... We were both saying how, surprising is how flat those lines are starting in March. Right? In our time this year at Black Box, we are used to seeing some volatility, some ups and downs. It's it's been crazy how stable things have been. It's like the the guest has said, like, you know, no matter what's happening out there, we will... We'll continue to, spend at restaurants at the same pace. We actually see a little bit of improvement. You see the the blue line there in the middle seeing some some, small, growth there from where we were back in March to where we are today. Traffic relatively stable, but improving a little bit along the lines as well. So so far, resilient consumer. I I keep saying the word I've said the most this year has been resilient, because of what we see here. Now, when you look at the October numbers and we only have three weeks in the data so far, you see a bit of a softening. Comp sales are around 1.5% positive, comp traffic around 2% negative. So we are seeing a little bit of a slowdown there, maybe a little bit of a watch out. We fear eventually consumer will have some decisions to make because of the environment in which we're under. We're going to talk a lot about the environment, a lot about what we're seeing from macroeconomic standpoint as well. But you see... You're starting to see a softening in check growth as well, which we'll we'll talk about here, in in the presentation. But that's the high level view when we go one level, deeper as we usually do and you look at what's happening by segment. We continue to see that upscale casual is our top performing segment, and it has been year to date as well, followed by casual dining. What's interesting is how we believe there's that trend of holding on to that experiential dining as much as you can. So if you take those two slides together, people are pulling back at the at the micro level, at the industry level. But it might be, Dwight, what this might be suggesting is they're a lot more willing to say, well, we're gonna hold on to that nicer dinner, that special occasion, maybe trade trade up from some of the others. Right? So maybe instead of going to quick service as often or fast cash flow as often, we'll skip some of those, we'll save it to have a better experience, a more elevated experience in upscale cash flow or even fine dining and even casual lining in some locations. Limited service there in the middle of the road, not doing great from a growth perspective, but still positive traffic. Again, in the middle, not not too exciting, but we'll see a different view of that in in the next slide. But then family dining continues to have some some challenges. In general, family dining has seen high check growth over the last eighteen months to two years. From a income perspective, those that are more on the lower end of the scale, middle to to lower middle, tend to be the the the consumer for a lot of those family dining brands, so more pressure from an economic standpoint. Now remember how I said limited service doesn't look that great from this perspective when you look at a slide? Well, when you look at it from this perspective, it starts looking a little bit better for those segments. So here we're looking at the percentage of brands that had positive comp sales in the purple and the ones that had positive comp traffic in the blue. And you see that the two segments that have a higher percentage of their brands actually grow their sales are quick service and fast casual. So the top line growth is not that exciting, but chances are if you're operating in those segments, you're doing better, in terms of getting those positive results. So so it really goes to the story of when things get tough, people, start holding on to to, those those places they can't afford. In a lot of cases, it's quick service and fast casual. But the other part of the narrative is they might be also skipping some of those and and trading it for some, higher occasions, some more experiential locations that you see in upscale casual, for example. Family dining, some challenges there. None of them seeing a positive traffic as you can see there on the right, so bigger challenges there. Casual dining is another one that's really interesting on the high level at the top line from from a headline perspective, casual dining really well. But when you pick... Peek under the hood, you see, well, half of the companies are not seeing that positive comp sales growth. It's a very small percentage that are actually seeing traffic growing. If you notice the blue bars for percentage they're seeing positive traffic, it's small. Only a third as you see in the title of this slide, only a third of all the brands that we track had positive traffic during the quarter. The norm is to see negative traffic. And I say that because recently, I was doing a presentation for a brand, and and someone called me out and saying, like, you sound too positive so far. Right? You know, resilience and flat and everything, but but traffic is negative. Right? How can that be, you know, resilience? Well, the the reason is that that's a long stand... Standing, phenomenon. That's structural for the industry, not something that happened this year. So the the point is despite what's happening this year, we still see the same trend. We still see pretty much, the the same behavior that we've seen over the last few years. So this is the longer term view. This is cumulative loss in traffic going back to 2018. We wanted to show, like, before COVID, we were already negative traffic. It's not COVID that did this. You see the huge valley because of COVID. We rebound and then we see the decline. I was also telling Philip earlier today how, like, if you plot from where we're in 2019 to where we're in 2021 and the rest of the line, it's almost a straight line. It's almost like COVID didn't exist. Right. We came down up and followed the same trend. The the the punchline behind this slide really is the fact that the median brand that we track has lost 21% of its traffic. It's same store traffic, I should say, over the last seven years. That is the norm for the industry. Even if you're in the top quartile, you can be considered top quartile and still that's the threshold of where you become top quartile. They've lost 9%. Those that are right at the threshold and those that are struggling more have lost 27% or more of their traffic in each of their units on average. So it is a challenging environment. We think there's two elements behind that, affordability and oversupply, and we're gonna talk about both here in this presentation. But looking at that same analysis, but looking at specific segments, again, the story of holding on to experience seems to be the the story there. Upscale cash hold, yes, lost traffic 16 points over the last seven years, but holding on better than most, followed by casual lining. People holding on to those sit down meals that experience that, more of a of a dine out than than a quick transactional meal. Quick service, fast casual, both losing 24% over the period on average. Family dining from this perspective also seeing more challenges. Now let's look at what's happening from a cuisine standpoint. And and we highlighted the ones where we have a more robust dataset, because we needed to have consistent set of companies over the last seven years to be able to do this analysis in a in a proper way. So we've highlighted these five, which we thought were the most robust in terms of datasets. And the story continues. Right? Stake, it is more of that premium product, more expensive. Things are tough from an economic perspective, yet people are holding on to those experiences. Followed by Mexican and Bar and Grill, two very popular cuisine types. Mexican, especially, has emerged as as one of the most popular in recent years. Bar and Grill traditionally, there, but continues to hold on better than than most. And you see breakfast and and hamburgers seeing a little bit more challenge. Hamburgers are very saturated place. You'll see when we look at the unit growth how fast casual and quick service are where most of the unit growth is happening. A lot of them are are burger places. You have a lot of independence. You have a lot of competition. So not surprisingly, not that we don't love our burgers, but on a same store basis, it really is diluting where people are going to and it's harder and harder to keep up with those same store traffic growth numbers. So I talked about affordability before, and we think that's one of the, main reasons why we're seeing some challenges from a traffic perspective. And this... We've been keeping an eye on this number for for years now, and it's just the long term view. And and the dotted line, the vertical line shows the average increase in wages over the period 2016 till today. Those wages have increased by only 52%. Well, restaurant prices have increased, by six points more, So it's less affordable. We can't afford less restaurant spending now than we did ten years ago, eleven years ago, while grocery only up by 32%, 20% less than what the the income growth is. So the the story is we can afford more grocery, we can afford, less restaurants. On a shorter term view, this is what we know. In q three, we continue to grow restaurant prices at a faster rate, 3.4% compared to only 2.2 for grocery. Yes. The average earnings went up by 3.30.6% year over year during that period. So it sounds good, but when you think about how much gas prices have gone up, how much inflation is, really consumer has been under pressure. So it's not... We have a lot of extra money in our pockets. From a forecast forecast perspective for 2027, moderation is, what we're what we're expecting, but still restaurant prices going to be higher by a large margin. 2.8% growth, in in restaurant prices. Next year is what the forecast is according to the USDA, 1%. So a significant drop there for for grocery, which makes our gap large again. So affordability will continue to be a factor behind restaurant spending. That was prices, but when you look at our data, here we're looking at... We know from a check growth perspective. And the message is one of starting to see increases. You see all the lines, and I know there's a lot of lines to keep track of there, but you can see we bottomed out around half of twenty twenty five. And since then, we're starting to see all segments start to increase that check growth. What's interesting there on the right is the inflation that we saw on the previous slide was 3.4% for price inflation in food away from home during the quarter, and you can see that most of the the segments that we track are either higher than that number now or at that number, meaning that there's less, promotional activity, there's less, managing down on check, probably the guests absorbing most or more of those price increases. The only exception to this is is casual dining that continues to see lower check growth than overall menu pricing inflation for the quarter. Next, we wanted to know and share with you who's actually walking through the door at the units that are winning on traffic in the most recent quarter. So we looked at the five mile trade area around each unit. Unless you're a travel or a tourist destination, that's where most of your regulars come from. We took the top 20% and bottom 20% of units in each segment and compared those trade area profiles. Green means the factor was a good guy or it was helpful in terms of traffic. Red means it was a drag on traffic in the third quarter of this year. Statistically, the biggest impact was on full service. A trade area that skewed Hispanic or Latino was a tailwind for both family dining and casual dining this quarter that fits with what we called out last quarter when traffic in markets with a large Mexican origin population flipped from lagging the country to outperforming it. On the other side is diabetes prevalence. We're using this as a proxy for GLP one usage. It's a headwind for family dining and casual dining. So smaller appetites means fewer apps, desserts, fewer visits. Boomer and retiree heavy guest spaces are also a drag for those two segments, while Gen z density was a plus for quick service and family dining. Also, millennial heavy trade areas weighed on fast casuals past quarter. And then lastly, upscale. It showed no significant demographic factors at all, which tells you its strength was more broad based. Demographic dynamics are part of the story. Another is supply. How many restaurants are sharing guests? This line is cumulative net unit growth for the brands we track, and that's compared to the same quarter in 2023. It includes both new unit openings and closures. On a three year basis, the industry is bigger, up 5.1% in units on top of, twenty twenty three. But look at the direction more recently. That number peaked earlier this year and has been drifting down since and now below 5.5% we had a year ago. So in other words, over the last twelve months, more units have closed than opened. That's not necessarily bad news. A lot of it is pruning, underperforming units coming out, and operators getting pickier about where they build. And, of course, the cost of capital has risen and the consumer environment has tightened up. With traffic still negative for most brands, fewer dining rooms or drive thrus are chasing the same guests, so can help the units that are still in business. So where is the growth actually happening and where is rightsizing occurring? Like the prior slide, this is cumulative net unit growth from, the third quarter of twenty three to the third quarter of twenty six broken out by segment. Limited service is where the expansion is. Fast casual has grown its footprint almost 12% in three years, and quick service is up about half of that level. In full service, upscale casual is the only segment adding units up 3%. Casual dining is flat. Family dining is pulling back down two and a half percent over the last three years. So couple of stories here. Fast casual adding units faster than anyone, but after several years of sales growth, comp traffic was down almost 3% in the third quarter. So I was looking like supply, demand starting to find some balance. Family dining is rightsizing and closing underperformers, which ties into our segment health check that we're gonna share with you in a couple slides. And then lastly, upscale, it's a story too. It has the strongest traffic growth this year, and it's expanding its footprint. Even though those units typically carry the highest investment cost of the segments that we have listed here. And when those new units open, here's what typically runs 22% more traffic than the rest of its system. So we're comparing it to its system there, and that's the honeymoon period. Grand opening buzz, curiosity. There's a fresh building in the marketplace. The way... The range is wide though. For the top quarter of brands, new units open 35% above the system, while the bottom quarter opens basically flat. But as you know, sales don't stay there. By months three to six, traffic is down 17% from those initial three months. By six to twelve months, it's down 27%. For operators, that first year is when consumer trial either turns into regulars or it doesn't. That comes down to the execution, and we'll get into that, in the guest section of this webinar. But first, we're gonna just step back and we're gonna look at a health check on the whole industry. So for every comp unit in our database that's opened since at least 2023, we compared its current sales volume to its own peak or max revenue on a rolling twelve month basis. If a unit is at 90% or more of its peak, we called it healthy. Between 7090%, we classified it as vulnerable. And below the 70% threshold, we classified it as at risk. So the good news is that most of the industry is in decent shape. About 69% of units are healthy, and notably, more than a third, 36%, are sitting right at their peak or within 1% of the peak. On the other hand, only about 4% are at risk, and that's based on our classification. Limited service is a little better off with 70% healthy and just over three percent at risk. Full service runs a bit softer, 66 healthy, 29% vulnerable, and then nearly 5% at risk. So floor isn't falling out, but with more than a quarter of units in that vulnerable middle, there isn't much room for error. And then when we break it out by segment, price point starts to show up some here. Fine dining stands out. Only 44% of units are healthy, and half sit in that vulnerable zone. When certain guests are stretched, the big ticket special occasion, often the first one that they rethink, and trade downs to upscale could also be a play here as well. Upscale casual follows a similar pattern, but not as severe, nearly 36% vulnerable, the second highest. Its at risk share is actually the lowest in the industry at under 3%. So those units are softening, not falling off. Casual dining has the highest at risk share at just over 6%. So there's a pocket of units in real trouble, even though the segment overall is doing, well. And at the other end, quick service is the healthiest segment with nearly 72% of units at or near peak. Family dining at risk is low, 3%. And as we saw a couple of slides ago, that's partly because it's been closing units and the weakest, units have already been closed. So, next, Victor, I'm gonna hand it over to you to zoom out and take a look at what's going on in the broader economy. Thanks, Philip. I think much like we saw with the industry is what we're gonna see from the economic standpoint as well in the sense that if you look at the headline, if you look at the big number, the, you know, the the the biggest aggregation, things look okay and and then things look fine. But then when you start, looking and and peaking underneath a little bit, you start seeing some some, real challenges. So, you know, yes, there's some mixed signals out there. There's some reason to be optimistic, on the the positive side, on the tailwind side. You know, GDP continues to grow. We're looking at two to two and a half percent is what we've had, what comms are predicting. Nothing there. It's suggesting, like, huge big, contraction and recession or anything along those lines. So we are, from that perspective, doing okay. Labor force continues to add jobs. So, yes, it slowed down, but we are not seeing major contraction there either. Upper income continues to be the story. Right? The balance sheet, is is healthy. That sense of of, wealth that comes from stock market, from from real estate, from all those different factors has been sustaining spending there. We are seeing unprecedented investment because of AI on the on that's... On the tech side, on, you know, building the data centers, building the equipment that's needed for their training people for it. All that investment has been helping us as an economy. And then finally, there's expectations for inflation to be high, but not on the long term. So when you ask consumers or when, you know, the surveys that do this, the the expectation is for inflation to go back to normal, rates, you know, in a few years. So no one's expecting this to be the new normal or or panicking around that and maybe starting to save because of the... Of what's gonna happen, down the road. So from that perspective, things are okay. But then you start looking at the other side of the coin and, yes, we're we're still hiring but at a lower rate, you know, a low higher... Low fire environment. One of the things that is, that's, concerning really is what's happening around long term unemployment. So as of September, 1,900,000 people have been unemployed for twenty seven months or... I'm sorry. Twenty seven weeks or or longer. Right? What they call long term unemployment. And if you go back ten years excluding the COVID years, the only time this has happened, where it's this high, it was on May of this year. So it's it's been going up, and in the last few months, we're seeing that a lot more. So the question around around skills gap, around people unemployed for a long time, around what that means from a long term perspective, that's where even if though... Even though the unemployment rate is not a problem, there's some pockets of concern there. Some people are having trouble with their credit card payments, with their auto payments. That shows softness in consumers, especially when you throw in the k shaped, conversation. Again, there's some interesting dynamics we're gonna be talking about here from an income level perspective, but the bottom line is those that have the most money are the ones that have been spending spending a a a healthy clip, and that's what's been helping the headline be good. Inflation continues to be high. The fact that gas prices continue to be this high, diesel prices continue to be this high, add concerns to that. And finally, consumer sentiment is is low, and we're gonna talk about that as well. But it really speaks to the fact that people are not very optimistic about today or their their immediate future. We showed this slide last time, and, much like we do, you know, in this case, the Bureau of Economic Analysis does some certain reviews of the data and refreshes them. And when they did, the numbers for this year don't look as bad as they used to to look a few months ago. So last time we showed this, 2026 was flat to negative in terms of real income growth year over year. Now with the revised number, they actually see some some growth. But the story continues to be the same. The growth this year is low compared to what it was last decade, what it was two years ago, what... Even what it was a year ago. Now from this perspective, we do see 1% more real income, in in people's pockets with... Might be the reason why we're seeing that still... The the consumer can be resilient, given everything that we're seeing, but definitely not the the strongest of years is what we're seeing so far. Consumer sentiment, I've touched on that before. Here's the the lines that show the last few years. You see '99, I'm sorry, 2019 as a as a comparison, how much higher it was. It is today is lower than it was at any point during 2025 or 2024. The drops are significant. Now, part of this, you have to think, is part of that polarization of of everybody, how the everybody seems to be on on two sides of the of the discussion, and either you're happy or you're angry at any given time. And and this might be the new normal. Right? Low consumer sentiment. But it also speaks that for a lot of people, things are not great. They don't feel great and their prospects don't feel great. And that might be coloring what's happening from their spending standpoint. And one area we really cannot ignore is what's happening around gas and diesel prices. Here you see the comparison last decade and last few years since we've been doing in this section. You see the differential there between those two, and typically diesel has been more expensive. That's the norm. But you can see how high it's been in 2026. Right? It's the biggest it's been in in in recent years. You see the bars there on the on the right. Once the the war begins, diesel prices start shooting up. They've been at historically high levels over $6 the last two months. There's very little chances of that dropping anytime soon at this point, it seems. So the concern is how does that propagate throughout the rest of the economy, especially from that supply supply chain perspective? That is the bigger concern. And what does that do inflation? What does that do to consumer sentiment? And does that, cause some contraction in spending down the road? So finally, looking at what's happening from an income level perspective, and this one's really interesting. This is some new, research I just saw from, Bank of America. And and what they do is from their credit card and debit card spending, they... They're able to see, well, how much are people spending compared to last year. And, also, they have, access to to people's accounts, so they see, you know, what's happening from a wage growth perspective. And what it's showing is that interestingly enough, in 2026, in in September of... And these are the rolling three month averages. As of September, you see that actually lower income consumers, and and here they divided by tertiles, the lowest third, the middle third, and the the top third, they don't specify what, income makes the the cut, but but they just break it into three big groups. And those that are in the lower income group are actually the ones that are growing their spending the most, which is surprising. Right? And then you see middle and and higher, kinda flat around $48.49 compared to each other. But what's also really interesting is that wages have been growing faster at that lower, level... The lower income level. So that has been helping. Of course, when you see the top, 5%, if you break down that little slice of the pie, yes, they're the ones that are growing. They're spending even more. That k shaped economy kind of showing up there as well. Not only they spend big number of dollars, but they're growing at a much faster rate than everybody. Couple of other things that I'll note about this is notice how for every single one of those bars, the spending growth is higher than their wage growth. Right? We're spending a little bit more than what we're making in in a lot of cases. So, you know, it's going into debt that's, using, you know, savings, for for spending. Maybe, you know, the people using lines of credit based on their homes, maybe taking out of their four zero one case as we saw in our previous webinar. But the point is there are some some challenges there, and we are keeping our spending not in the healthiest of of ways. The other thing I'll note is there on the right of the box that shows how the growth in necessities has been almost six percent year over year. So that's what... Yes. The the lower income consumer is spending more because simply their necessities are going up at a faster rate. They've had to spend more because they didn't have a choice around that. For higher income households, it's closer to only about three percent growth in those necessities year over year. That completes the picture. It's not that they have a a lot of money in their hands, not that they wanna spend more. It's they've had to spend more. And how are they doing that? Well, in a lot of cases, getting into debt with is not the the healthiest way of doing it. So that was the consumer wallet. Now let's talk about what guests do with what is left in it. When spending is outrunning wage growth at every income level and lower income households are putting more of their budget towards necessities. As as Victor just mentioned, every visit has to earn the next one, and that's really the name of the game right now. With more brands still running negative traffic, you're not gonna outgrow your way, or out of this. On new guests alone, it's your regulars, the guest who comes in twice a month or twice a week, and those... And that the drive, through crew knows by heart. They're ordered by heart. They're named by heart. Keep... So keeping them coming back, it's cheaper. It's more reliable than buying a new guest with a promo, but guests don't usually leave over one big blow up. They leave over friction, the lukewarm fries, the missing side, the fifteen minutes of waiting on a check, or to be seated when there are clearly empty tables in the dining room that are available. So it's small stuff that adds up until they sometimes quietly take that visit down the street and sometimes complain about it in reviews for everyone to see. So we wanted to put a number on it. Does guest friction actually show up in your comps? And it does. And it is a strong signal that we found. Here's how we looked at it. Within each brand, we compared the units that were beating their segment on com traffic in their own market against the units that are falling behind. So same brand, same menu, same price points. Then we counted complaints at each unit and normalized it for traffic so the busier stores don't get penalized. Of all the metrics we looked at, complaint volume had the strongest link to how a unit's traffic performed against its market. In quick service and family dining, the top units get 23 fewer complaints than the bottom units, and in casual dining, it was 16% fewer. So the gap is execution inside the four walls. Fewer misses drive more repeat visits. Next is our best versus rest view. The best are the top 25% of units by traffic growth relative to their own market, and everyone else is the rest. For each group, we're looking at net sentiment, which is percent positive minus percent negative comments found in Google in Google reviews. For full service, value is still where the race is run. One, food and service net sentiment are basically even between the two groups, just one point apart on each value is where they split. 26% sentiment for the best units versus 18 for the rest, that's an eight point gap. That's in line with with what we saw last quarter. So full service guests are still asking whether the meal is worth it and whether the price and the portion are right. Limited service is a different story this quarter. Value had been the big differentiator. 10 gap last quarter. But now it's flat and negative, 13 for both groups. And that and that just means there's more complaints than compliments around that topic. The separation has moved to execution. So food, seven points better. Service, eight points better for the top units. Our read is that with everyone pushing value, menus, and bundles, value has become table stakes. In limited service, guests are looking beyond the deal. They're noticing and talking online about execution, whether the order is hot, whether it's fast, accurate, and handed over with a smile, and that ties right back to the complaint gap that we just saw. So all this raises the question of where your value investments as a company are going next. So from here, Amy, let's go ahead and get the poll up and and see where we're where we're at at the moment. I'll click over to that. Alright. There we go. So poll is open. If you didn't already answer that poll at the beginning, when we started, please head over now. That's in the right side of your screen. Again, looking for over the last six months... Or over the next six months, where is your value strategy focused? Feel free to click more than one of these before you submit. So if you've got several initiatives here, that's alright. We wanna know everything that you guys are thinking for the next six weeks where value is really headed, in those decisions. So we'll give just a few minutes there and In terms of portion and menu architecture, publicly, several brands are talking about their barbell strategies with, like, low entry points on one end, premium cuts on the other. And several brands had mentioned guests were trading up, more than expected when they when they do that. So interesting to see on that one. Yeah. And the other constraint perspective, what the plan was, the fact that inflation continues to be high, the fact that there's some fears in the supply chain for it to continue to cost be high because of that, That changes what you can do from a from a value perspective. Right? So maybe a a change is needed in terms of of how you deliver value, which is more than just discounts and and promotions that we've been been saying. Right now, it looks like service is kinda in the lead. Interesting. Yeah. Publicly, there have been been some brands out there talking about cutting, server sections from six tables to four, and they're seeing a jump in their service scores. All that certainly helps with value, holistic value. Just just finally, I saw not too long ago, a few months ago, that Starbucks was overnight refreshed, like, a thousand, units at a 150,000 a pop, but they said they're getting good results from that based on the public comments. Okay. Should we move forward, Kim here? Alright. Alright. So this chart is the percentage of brands with negative check growth year over year. It's a good read on how hard brands are leaning on discounts and deals to protect traffic starting with full service and the purple line through for 2014 or 2024 and 2025. A growing share of brands were giving up check to win visits, peaking at 29% in the second quarter of last year. Since then, it's come down 14% in the third quarter, so it's been cut in half. Limited services stayed in a tighter range mostly between five, 13%. Did take up to 13% this quarter, but still well below where full service has been. What this tells us is there's downward pressure on check averages. Fewer brands are pulling the deal lever as hard, and it fits what we saw on the sentiment side, slide. Everybody has value now. The value wars have become table stakes. So the next phase is about how brands differentiate once the deal stops becoming the different... Differentiator and what guests, come to expect in its place. Remember that complaint gap from the start of this section. Here, we want to go a little bit deeper, and we ran a machine learning model over the last twelve months on complaints to see which part of the experience best separate the units beating, so outperforming their peers on comp sales and the ones, that are underperforming. We left out outcome measures like value and purpose, and we did this, because it's all about specific executional things that your team can control. And in full service, service is number one. It's about twice as point as important as food. Environment is a close second at 82%, which includes cleanliness and atmosphere and decor. Think back to what Victor showed at the top of this webinar. Upscale casual is leading the industry with comp sales up almost 6% positive traffic too, compared to twenty nine, twenty eighteen, upscale casual and steak focused concepts have held on to the most guest visits. Those are the experiential, special occasion concepts. What makes an experience feel worth it is exactly what is top in the list. Hospitality, the room you're sitting in. So food still matters, but it's the baseline. Service and environment are what earned that return visit. What does bad service look like to a full service guest and what do we want to prevent? We dug into the negative service reviews in the third quarter and three themes come up most often. We highlight this because awareness leads to training, which influences positive outcomes. First is slow speed. That's kitchen execution and long wait times, servers who are slow to greet, take the order, and lags on to go curbside digital orders. Off premise guest aren't all the same. Some will give you a little grace on timing, but many hold you to that same clock, as the dining room, especially when the app quoted them a ready time and the order isn't ready. Second is careless staff. The greeting, the host stand, you know, it falls flat. Staff are socializing with one another instead of taking care of the guests and servers aren't following up or nobody checks back and the guest is left trying to flag someone down. Third is unprofessional behavior. This is the one that really sticks and it's the opposite of what's needed to solve a problem. Managers who get dismissive or combative, when they're solving it. Other themes include hostile body language or sarcasm by the staff and staff arguing in front of guests. So none of these are menu problems. They're execution and training, and that's very fixable at the unit level. And this is this is the same approach for limited service. The biggest takeaway isn't what ranks first. It's how tightly everything is grouped together. In full service, service ran away with it. Food was less than half as important and beverage trailed way back. In limited service, the spreads much tighter. Environment is on the top. Food is at 73% of its importance and service at 66, convenience at 64, and even beverage in last place still at 54%. So every driver is pulling at least half as much weight as the top one. So in limited service, from an overall perspective, there's not really a single lever, that you can fix. Call it a day. Guests are trading the whole visit. They're they're grading the whole visit. The counter, the window, food, hand off, speed, the drink, any miss can show up in comp sales. Environment does edge out the rest, though. So we're gonna take a look at when guests complain, what are they complaining about most often. And first is a dirty facility. That means dining areas with dirty floors and tables, restrooms that haven't been checked in a while, the beverage, condiment stations that are sticky, messy, or picked over. Second is pests, smells, flies, gnats, fruit flies in the dining room, like a mildew or sours, mop smell, water smell, and employee hygiene issues also that that they write about. So guests are writing about what they smell as well as what they see. And third is loud or noisy atmosphere. And that's that the music's too loud or it doesn't fit the brand. The staff's having unprofessional conversations or yelling across the line where guests can hear every word. Like full service, none of this is about the menu. It's side work, checklists, and the managers who, walk the lobby during the rush. So it's basic execution and it does show up in comp sales. So to bring all this together and and to end this section, complaints are the metric most tied to traffic. The units winning are the ones with less friction. Values now table stakes, especially in limited service. And where you can pull ahead is on execution. And that service on the full service side and cleanliness on the limited service. So every one of these comes down to people, and you can't run a low friction shift, short staffed, or with a revolving door at the line. So given all this, Victor, what are we seeing with the restaurant workforce today? Yeah. Thanks, Philip. Definitely, like you said, right? At the end of the day, we're a we're a people based business, so we need to to see what's happening with our workforce. So this is what we know from our tool rewards survey. We ask the question every year, what purse... Like, what is your typical staffing level? And and the percentages show percentage of companies. So this is the percentage of companies that said we're typically fully or overstaffed at each of these position levels. So in general, they said we don't have a problem with staffing. So what it's showing is that for restaurant hourly front of the house, actually, the percentage has been going up the last few years. You can see how 2023 was so so critically bad. We're having so much trouble because of COVID. But coming back from that in in 2022 was actually worse. '26, we're start... Still seeing some improvement compared to '25. Almost 60% of companies saying we got the front of house figured out. We were fully staffed. So it's still at 60% as low, but but it's better than it has been. Right? But now you see what's happening with back of house and for managers that are not GM, so the other levels of management. And you can see that, actually, there's less... There's fewer companies today that are saying we're fully staffed than we had a year ago. The percentages are are critically low. Less than half of those companies responded that they're fully staffed all the time for their back of house, only 40%. That one is really eye opening. It's a very low percentage for their managers. We're seeing some challenges there. And for general managers, it's not moved a lot. It's typically around that number, but it still speaks to the fact that if only two thirds of companies out there are fully staffed the general manager, that means there's a lot of units having trouble because they don't have a leader within the four walls. So it itself is a challenge. So we're gonna be talking about what the effect is on that. And and this is one of those slides that you might be saying like, yes, of course, we notice intuitively, but what we try to do, like... So I mentioned before, so put some numbers behind it and quantify it. So in this case, what we're looking at is based on that previous slide, those companies that told us we're fully staffed typically all the time or even overstaffed and looked at their traffic and compared to those that were understaffed typically. And what we found is that if you're fully staffed in the front of house, there's a little bit more traffic. There's better results point too. So, you know, if anybody said, you know, there's a little bit extra traffic you can get, we'll all take it, but it's not a substantial difference as much as what we see from other positions. It might be just the fact that there's more companies that are fully staffed in in the front of the house, so there's less of a differentiator. When you look at the back of the house, that's where we see bigger challenges, but you start seeing bigger payoffs. Those that are fully staffed in the back of the house are half a point better in terms of their comp traffic growth than their peers. And if you think about what, Philip just mentioned and and and talk about those service complaints, speed, for example. Well, if you're fully staffed in the back house, chances are your speed is gonna be better than if you're you're understaffed. But no doubt, the biggest payoff, we continue to see this year after year going back through the the whole history of Black Box. Really general managers are the linchpin of all of this. If you look at those that are understaffed at the general manager position, it's a huge big difference, almost two points difference in terms of comp traffic. Think about this is looking at the at the brand level on average. You know, the the averages might be, you know, hiding the fact that for those units that are understaffed are seeing much worse results. So there's nothing like having a good GM in place as you know well. So what's happening from a turnover perspective and and, you know, why are we seeing staffing a little bit better? Well, in general, we had been seeing some lower levels for turnover the last few years as you can see there for some of those bars. We were at lower than 2019 numbers recently, but like we said a quarter ago, we thought those days were behind us, the days of of, lower turnover, and we're starting to see a reversal on those trends. And that's what we're seeing today. We're starting to see that turnover rates for third quarter are a little higher than what we saw a quarter ago for most of those, positions and, and super segments. The only exception is limited service hourly, which is fairly flat there, and and lower than it used to be. One of the reasons we think that turnover had been decreasing so much is the fact that we grew our wages as an industry much faster than the than the economy overall. So we're playing catch up when it came to wages in a lot of cases. However, now we... As we'll see here, in in, in the rest of this presentation, wage growth has been moderating down list less of that advantage of of, of growth coming internally, organically, and more of a opportunity, maybe more of an incentive, I should say, for people to say, well, if I move to this other job, I may be getting a bigger bump than what I get if I stay, at at this, company. So as as Victor just mentioned, turnover is creeping back up in full service, but let's put a price tag on that. These are the hard numbers of replacing a single employee. So the separation, the recruiting, training, hiring, For an hourly team member, it's just under $3,000 For non GA manager, it's about 10 ks, and for a general manager, it's over 17,000. The hourly number is up about $300 from last year's survey, and for every 100 hourly employee replacements, it adds up to roughly 300,000 in hard costs on the p and l, and that's before the soft costs. So slower ticket times, missed greetings, and a messy lobby while the new hire gets up to speed. So in other words, everything we just walk through in the guest section. Notice the line at the bottom to training is the biggest piece, roughly 40 to 60% of the total. Every time someone walks through the door, you're, paying them again. You're paying again for training you already bought once. And remember what Victor just showed a minute ago, brands that are fully staffed at the GM level are beating their segment on traffic by 1.7 points. So keeping your leaders does indeed matter. So what actually keeps people? We asked operators what's the most effective way to reduce turnover, and this list hasn't changed in two years. For hourly team members, it starts with time, not money. Flexibility in scheduling is number one, and predictability in scheduling is number three. In between is more frequent pay adjustments and then larger pay raises and better training, rounding out the top five. For managers, money does come first. Larger pay adjustments are number one, but professional development is right behind it. Then reduced hours or a more attractive schedule, more frequent raises, and PTO. The takeaway, a lot of what works isn't, a bigger check. As Amy put it in our September workforce webinar, it's setting people up for success at home, financially, and at work, and training pays off with guests too. Brands giving GMs more than forty hours of ongoing training a year run 12 points better, net sentiment versus their segment, In front of house teams with fifteen plus hours, run 13 points better. So that's the guest experience gap, we just walked through. And then finally, wages. This is year over year wage growth for August. It's on a three month trailing basis and split between new hires and stayers, so those people that you already have. In full service, the bidding war for new line cooks is basically over. New hire wage growth is just 1.4%. That's down from 2.5 last year, but stay your wages are up 2.3%. So operators are putting their dollars into retention, paying to keep the cooks they've, already trained rather than outbidding for new ones. And that's pretty smart when it costs $3,000 to replace one. Limited service is a different picture. Crew wages are running hotter at 4.7% for both new hires and stayers. That's a big step down for stayers from 7.2 last year, but limited service started from a lower, wage base and is still catching up. And that's real pressure on the margin. Over five years, restaurant wages have outgrown the roughly 24% increase across the private sector, and that catch up is a real reason turnover came down. So with that, Victor, take us into our updated top line forecast. Yeah. So a lot of data, what's happening today? What do we see happening tomorrow based on all this data like Philip mentioned? I'm gonna start with the underlying, assumptions and and variables behind our model. We've been looking at these four over a long time as the most predictive to to restaurant sales and traffic as we track it. We have the average there for the last ten years. So first quarter of sixteen through second quarter of twenty six, excluding nine quarters because of COVID. Then we have the last four quarters, the average for the last four quarters, as of today, and then our 2027 forecasted. So basically, what's expected for less... For next year is, disposable income growth, softer than the average for the last ten years, a little bit better than what we've seen in the last four quarters, but still soft from a historical perspective. You'll notice that spending growth at 1.8% year over year is much lower than it was over the last decade, what it has been the last four quarters. A pullback in spending is what's expected. Inflation a little hotter than the norm for the last ten years. Unemployment also a little bit higher. So mostly what we're expecting is a pullback in in spending overall, giving all the dynamics, the fact that we're spending more than we're making and and all those different, factors will probably cause people to pull back a little bit given inflation as well. Given that this is what we think happens, this is for all segments. You see there at the bottom, the midpoint for the range is a little softer on the traffic side than what we saw, this year. 1.9 is what we've seen the last couple of years, 2.1% the midpoint of the range, but, but more of a expectation somewhere between negative three to negative 1.1 is what we're thinking there. On a comp sales perspective, 1.7 is what we saw so far this year. Next year, we're expecting the midpoint around point seven points. Basically, what what, is happening here is a little bit of softening in in traffic, but also we're expecting less inflation. As we saw before, food away from home inflation is is expected to be lower, less, moderation down in in check growth, kinda counteracting there, but in general, less lift from check. So We see a scenario in which things are not too bad, inflation comes down, people are spending as usual, and we still see same sales as we saw this year, but likely it's going to be a little softer than what we saw in 2026. Now that's the story for the industry. That's the story based on the economy, but that doesn't need to be the story for your brand. And and we say that because all the time we see companies doing something differently, and and setting themselves apart in winning in the marketplace. So we wanted to end up with some of the things that we found. So for this section, we looked at the last twelve months of data ending in in... At the end of q two of this year, and we called the best, in in this section, it's the top 25% of brands based on their comp traffic growth and compared to the other 75%. That is what the best and the rest will mean. And we split up by segments. And first of all, what are companies in limited service doing differently that are winning? Well, they're seeing some really strong growth in their breakfast day park. They're stronger in lunch and dinner than the rest, but primarily in breakfast is where they're they're not getting out of the park. Not... Of course, breakfast is not for everybody, but for those that are doing it, that's an avenue for great growth that they're seeing so far this year. On the, dine in versus off premise, question, best performers in limited service actually have a very small percentage of their business be dine in. Most of it is off premise. So they're leaning in into what they're known for. A lot of people using limited service for off premise dining, well, they're leaning into that winning in that game, and they have very small dining presence. On the, family dining side of our data, what we found is that those that are winning on traffic, the best... The top 25% on traffic, one of the things they're doing differently, based on the data is that they're actually having more of their sales going through delivery. They're embracing the delivery channel. They're getting success through that channel. That might be the way a lot of of, guests are interacting with them, getting to know with them or know them or or kinda... You know, when you go to the app, you're looking at what you're gonna order. You know, they find in there that might be the the catalyst for some restaurant visits as well down the road. And then from a guest sentiment perspective, environment critically important for this segment. So like we heard from from Philip before in terms of reducing their their complaints, those that are the best in family dining are rated as having much better environment for the guests. It's again about having that experience. You're spending a little bit more money and time with you as a as a guest. They want it to be in a in a... Incur... In a nice environment that that encourages them to come back. From a casual dining perspective, when you look at dayparts, we see that the best, again, on traffic, what they're doing is, yes, they're winning on all dayparts, but they're expanding beyond just dinner. Yes, they're winning at dinner, but they're winning even bigger at lunch and even bigger at mid afternoon. So they're a very attractive and viable option for guests across the entire day, not just at dinner. And then the other thing that they're doing is they're really winning at catering. They're recognizing that as an expansion opportunity. Their share of sales in in catering is much larger. Again, think about it. This is the ones that are winning on on, traffic, not necessarily, you know, thinking about catering from a traffic perspective. But one of the things they're doing is, again, maybe the way a lot of guests are interacting with them, revisiting the the brand. Maybe they haven't been there before. Maybe they've not been there in a while. They get a care and location, through through, through the brand, and that motivates them to come back and and visit in in house. And from... Finally, from an upscale perspective, we're seeing that they're excelling at dinner. They are owning that day part. Those that are, the best, from a traffic perspective have a larger percentage of the share of of their sales coming through the dinner day part. That's what they're owning. They're they're, really kings of that occasion, that day part. And finally, consistency is key in this, sector of the industry. We're spending more money when we go there, our expectations are higher. We are celebrating some special occasions sometimes. It has to be consistent. It has to be meeting those expectations based on what we know from the brand in the past. That's what we know, the data shows our performers do, and and we went... Wanted to end on that, that high note, giving the the potentially negative forecast. But, hand it back to Amy for some final thoughts as we close the webinar. Thanks, Victor. I mean, this was an incredible presentation, a great way to round out our year, 2026 webinar. Special thank you to Victor and Philip for the insights they shared today, also to Michael Borman for answering those questions backstage. We have an incredible insights team. They work tirelessly to pull this together quarter after quarter. And, you know, not just these sessions, but every day, the work that they do for you, our customers, so we're incredibly grateful. Couple of things before we close. If you'll be at the Restaurant Finance and Development Conference in Las Vegas, November ninth through eleventh, our team will also be there. Would love to connect with you. And be sure to catch Victor. He's in the opening general session on Tuesday, the tenth, at 8AM. He's gonna share what our data shows about which brands are thriving under pressure and why. And we'd also love to sit down with you while we're there. So if you'd, like some insights like these between webinars, also feel free to subscribe to our mailing list. And then just closing out here. There we go. You know, we couldn't do this without you. So last but certainly not least, thank you for attending, taking the time, for being great partners with us. We feel incredibly privileged to do this every quarter with you. We want these sessions to always be a must attend for you all. You know, so please share your feedback in the short survey that'll appear when the webinar ends. And that's it. That wraps up our twenty twenty '6 State of the Restaurant Industry Series. We wanna thank you again, and we look forward to seeing you in 2027.