- Published on Tuesday, 18 February 2014
- Written by Jerry Stiegler
This week we look at retail sales numbers, examine the role of bad weather on the industry’s performance, look at a growing problem for small pizza operators and much more.
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Retailers felt January’s chill as sales slid 0.4 percent. Auto sales led the decline dropping 2.3 percent from December. Without autos, January sales were flat compared to December. The Census Bureau heaped on more bad news by revising December’s sales from a positive 0.2 percent to minus 0.1 percent. November sales revised down 0.1 percent. One sliver of good news: total retail sales were increased 2.6 percent compared to January 2013.
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Restaurants and bars frequently buck the overall retail sales trend, but, unfortunately not in January, which saw sales drop 0.6 percent vs. December. December sales were revised down to minus 0.7 percent over November. Restaurants did see sales growth of 2.3 percent over January 2013.
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Remember these statistics cover only restaurants and bars. Hotels, resorts, retail establishment nor institutions are part of the survey. January numbers are considered advance data subject to revision. The information is adjusted for seasonal variations, weekends and holidays but not for menu price changes.
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Most reports blame, at least partly, the weather for the weak sales. Please see the discussion of weather’s effect in the Foodservice News This Week section below.
Economic News This Week
- Initial-jobless claims increased to 339,000, up 8,000, for the week ending Feb. 8. The 4-week moving average reached 336,750, an increase of 3,500. One economist said that claims totaling less than 350,000 would be consistent with moderate job growth yet the rate of new job creation has limped along the last 2 months.
- Industrial production tumbled In January to 0.3 percent, the first drop since July. The Federal Reserve also reports manufacturing output declined 0.8 percent, the biggest drop in 5 years. The Fed said severe weather curtailed production but some observers refused to accept weather as the sole reason for the decline. Further, the Fed lowered manufacturing production to an annual rate of 4.6 percent in the fourth quarter, a downward revision from 6.2 percent. Also, the capacity utilization rate fell to 78.5, which is 1.6 percent below the long run (1972-2013) average.
- The Euro-Zone expansion beat forecasts. Germany, Austria, the Netherlands, and Portugal all reported stronger than anticipated growth. Italy, which had not had economic expansion since 2011, grew 0.1 percent. While Greece was the only Euro-zone country that did not report growth, the economy there is improving. This might account for McDonald reporting 2 percent January comparable store sales growth in Europe.
- Small business owners are more optimistic, according to the Wells Fargo/Gallup Small Business Index, which rose to 45 in January from 24 in October. While this represents the index’s highest point since the third quarter of 2008, it remains far below the highest pre-recession levels. One interesting note was that small business owners’ expectations for hiring increased to 22 percent from 16 percent in the last quarter.
- Consumer confidence, as measured by the Reuters/University of Michigan study, surprised the experts when the preliminary February Index stayed at 81.2, the same as the final January reading. Most forecasters expected a decline. Meanwhile, Gallup’s Economic Confidence Index fell to minus 18 in the week ending February 9. This is the lowest the Index has been so far this year.
Foodservice News This Week
- Is bad weather a real problem or just an excuse? There is no question that many parts of the U.S. experienced exceptionally bad weather this winter. And, as expected, everyone from the U.S. Department of Commerce to many restaurant chains attribute slow sales to weather related challenges. But we certainly had some bad weather last year, too, so that has to be factored into sales performance. Sometimes bad weather can help certain operations. Those operations that offer home delivery may experience an uptick in volume during bad weather. Obviously, when roads are closed and power is off a lot of business is lost but even then there may be some recovery. Twenty-five years ago what was described then as a “50 year” ice storm hit the south, knocking out power to millions. Those restaurants that did have power had lines of customers because people couldn’t cook at home. Economists often refer to weather related problems as “rogue factors” because they hit hard but don’t last long. And there is a rebound effect. One stock analyst called this the eighth worst winter on record but pointed out that the last time winter was this bad, retail sales plunged 0.7 percent (January 1994). The next month sales rose 1.4 percent.
- Smaller pizza shops are hurting, according a recent Wall Street Journal article. Traditionally the pizza business was one where independent operators could set up shop with a limited budget and make a living. But this is getting harder to do as online ordering accounts for 40 percent or more of the sales for the major pizza chains. The little players have neither the capital or the know-how to set up an online ordering operation. Thus, The NPD Group says that independents and chains with fewer than 100 units have seen their market share drop to 19 percent and the number of units decline while the pizza delivery market has grown to 23 percent of the business from 19 percent 5 years ago. Is it possible that a supplier to the smaller chains and independents could develop a turnkey online ordering system for their customers?
- The restaurant chains with the most loyal customers, according to the just-released Brand Keyes Customer Loyalty Engagement Index, are Subway (93 percent), Panera Bread (90 percent) and Domino’s Pizza (89 percent).
- Convenience stores are becoming more competitive with restaurants by successfully offering a variety of fresh, high quality foods, according to a study by Technomic.
- Piggy owners at Quizno’s? That’s what an attorney says, claiming the chain’s management was overcharging franchisees while getting rebates from suppliers. Mike Lasry’s Avenue Capital, Quizno’s current owner, is trying to stave off bankruptcy. According to the NY Post, the average Quizno’s franchisee must generate $425,000 in annual sales to break even but has only generated $280.000.
- An affiliate of Apollo Global Management announced the completion of its deal to acquire CEC Entertainment, the parent of Chuck E. Cheese.
- Burger Works, Red Robin’s fast-casual concept, has moved to version 2.0 according to Burger Business. The chain has made changes in the menu, kitchen and interior design that makes Burger Works “more closely aligned with the Red Robin brand.
- Paul Martin’s American Grill will open in Scottsdale, Ariz., this spring. The restaurant chain with six units in California was founded by Paul Fleming, the developer of Fleming’s Steakhouse and P.F. Chang’s.
- Growth Chains: Moe’s South Western Grill has signed an agreement that will bring 17 new restaurants to the Dallas-Ft. Worth area. Bourbon Brothers plans to open 40 locations in the next 60 months with the first 4 to open this year. Red Robin expects to open 20 new restaurants this year in addition to 5 new Burger Works. Marco’s Pizza plans on opening 100 new locations in the Houston market over the next 5 years. The Tropical Smoothie Café chain, which opened 40 units last year, has a goal of having 750 franchise units by 2019.
- Comparable Store Sales Report: Ark Restaurants (up 1.8 percent), Burger King (up 0.2 percent), Captain D’s (up 2.6 percent), Cheesecake Factory (up 1.1 percent), Famous Dave’s (company owned down 2.6 percent and franchised down 1.1 percent), Grand Lux (down 1.1 percent), Kona Grill (up 3.5 percent) and Red Robin (up 3.7 percent).
For details and same-store sales of other chains, please click here for the Green Sheet.
Foodservice Supplier Financial Reports: New quarterly data for International Paper and Newell Rubermaid this week here.