Whether you are in QSR, fine dining, or any concept in between, comp store sales is one of the most important measures by which you will be judged. In fact, the emphasis on comp store sales by Wall Street is, in my opinion, given way too much weight in evaluating a company’s performance.
Let me explain. Comps for units open 12 months measures how you are doing against yourself. In the case of comp store sales, it tells me how your sales are doing this year vs. last year.
But your sales may be comping up because average check is up. Maybe you increased your prices. Or maybe party size changed or buying preferences changed. Unfortunately, there are some chains our there whose comp store sales are up, but whose comp store traffic is down. This is very disconcerting, because ultimately comp store traffic is a more important indicator of competitive health. In the short term I can mask poor sales performance with comp store sales data, but comp store traffic tells me how well I am getting customers to come in and come back.
However, for me, the best measure of competitive health is the trend line of your share of market—something you rarely see reported in annual financial reporting, let alone quarterly. Notice I did NOT say your share of market. Here’s why: Suppose I told you that a company had a 12% share of market. Is that good or bad? Well, if their share three years ago was 18%, it’s a problem. On the other hand, if it was 8% three years ago, they are gaining position in the marketplace.
The trend line of your share of market speaks volumes about how well your concept is competing in the marketplace. And ultimately, isn’t that what really matters?
Photo credit: The Consumerist