Restaurants hit worst in 3 years as payroll tax holiday ends

3/24/2013

NEW YORK — Restaurants are reeling from their worst three months since 2010, as American diners spooked by higher payroll taxes cut back on eating out.

Sales at casual-dining establishments fell 5.4 percent last month, after declining 0.6 percent in January and 1.6 percent in December, according to the Knapp-Track Index of monthly restaurant sales.

This was the first three months of consecutive declines in almost three years, with consumers caught in a “very emotional moment,” said Malcolm Knapp, a New York-based consultant who created the index and has monitored the industry since 1970.

“February was pretty ugly” for many chains — and probably will be the worst month of the year, Mr. Knapp said.

This decline after January delivered an “initial blow,” while Americans grappled with increased payroll taxes and health-care premiums, rising gasoline prices, and budget debates in Washington, Mr. Knapp added.

Even as consumers open their wallets for bigger-ticket purchases including cars and furniture, weakness has surfaced at full-service companies such as Brinker International Inc. and Darden Restaurants Inc., as well as limited-service chains including McDonald’s Corp. and Yum! Brands Inc.

U.S. paychecks have shrunk this year after the tax that funds Social Security benefits reverted to 6.2 percent from 4.2 percent. 

Meanwhile, the average price of a gallon of regular unleaded has risen about 12 percent since Dec. 31, to $3.69, including a one-week jump of 17 cents between Jan. 27 and Feb. 3, based on data from AAA, the largest U.S. motoring organization.

“That one-week spike was a killer; it destroyed sales in the first week of February,” Mr. Knapp said.

Darden’s company announced a decline in same-restaurant sales for Olive Garden, Red Lobster, and LongHorn Steakhouse in the three months ending Feb. 24 compared with a year earlier, Chief Executive Officer Clarence Otis said in a Feb. 22 statement.