Published on Tuesday, 17 September 2013
Written by Jerry Stiegler
August restaurant sales increased, according to the U.S. Commerce Department. Meanwhile, some observers question the U.S. Labor Department's huge drop in jobless claims. This week, we also take a look at the U.S. birth rate, food trucks at Disney World, McDonald's sales and much more.
Retail sales rose a lackluster 0.2 percent in August compared to July's levels, but the U.S. Department of Commerce also calculates that sales increased 4.7 percent over August of last year. The red hot auto market increased 0.9 percent over July and 12.3 percent compared to August 2012. In fact, the U.S. Department of Commerce said without car and light truck sales, total retail sales were up just 0.1 percent last month.
The good news was that the U.S. Department of Commerce revised its July retail sales figures, increasing them 0.4 percent or double the originally announced increase.
Including adjustments for seasonal and other differences, restaurant and bar sales grew 0.3 percent over July. Versus August of 2012, restaurant and bar sales increased 3.9 percent last month. For the first 8 months of the year, industry sales are up 4 percent.
This data comes with a few caveats. First, it covers only restaurant and drinking place sales but does not include hotels, theme parks, stadiums, clubs and the so-called institutional segments. Second, the data includes adjustments for seasonal differences, trading days, weekends, etc. but not for inflation. Finally, the report is considered to be "advance" estimates based on a subsample and can be substantially revised.
Economic News This Week:
- First-time jobless claims plunged by 31,000 for the week ending September 7, with total claims falling to 292,000. But U.S. Labor Department officials cautioned that two states – one described as more populated and one as small – were upgrading their computer systems and that may have resulted in fewer claims entered into the system. One source said the states were Massachusetts and Nevada. The data is based on actual claims and the U.S. Labor Department projects numbers only if a state doesn't report. Some critics fault the U.S. Department of Labor for reporting statistics they know to be wrong. It is possible for one state's reporting to skew the numbers and California is frequently given as an example. Officials said they do not believe the rapid decline signals a major change in the employment picture and suggest that the next two weeks will clear up the confusion.
- Recession worries still haunt American workers according to a poll by the Gallup Organization. The number of employed workers who fear getting their benefits reduced, wages cut, laid off, and/or hours cut has stayed remarkably consistent since 2009.
- Consumer credit grew by $10.4 billion in July, making the annualized rate of increase 4.4 percent according to the Federal Reserve. Non-revolving credit (i.e., car loans, student loans, etc.) grew by 7.4 percent while revolving loans (mostly credit cards) fell by 2.6 percent. This lends some credence to the theory that consumers are buying big ticket items like cars but cutting back selectively in other areas.
- The U.S. birth rate continues to decline according to the Centers for Disease Control & Prevention. There were 63 births per 1,000 women between the ages of 15 and 44 in 2012. In 2011 the rate was 63.2. Last year's is the lowest rate on record since the government started tracking the fertility rate in 1909. It takes 2.1 births per woman for a generation to replace itself and the U.S. has been below the replacement level since 2007. Demographers believe this will have a major impact on the economy in the future.
- Mortgage applications dropped 13.5 percent in the week ending September 6, according to the Mortgage Bankers Association. The decline reflected a 20 percent drop in refinancing applications and a 3 percent drop in purchase loans. A rapid rise in interest rates is blamed for the slip in demand even though mortgage rates remain low by historical standards. Since two-thirds of home sales use borrowed money, it appears that home sales will continue to be affected negatively.
- The New York Federal Reserve's Manufacturing Index slid down to 6.3 in September from 8.24 in August but it still indicates moderate growth in the Empire State area. Shipments were the highest in over a year. New orders also increased.
- Industrial production rose in August by 0.4 percent after being flat in July. Manufacturing and mining production increased while utility production declined. Capacity utilization moved up 0.2 percent in August to 77.8 percent which is 0.6 percent higher than a year ago but is 2.4 percent below its long run (1972-2012) average.
- The Producer Price Index – sometimes referred to as the Wholesale Price Index – rose 0.3 percent in August after being flat in July. Oil and food prices were responsible for the increase. Food increases were driven by big jumps by vegetable prices and also by a rise in poultry prices. Without energy and food price rises, the so-called core index was unchanged from July.
- Consumer sentiment continues to decline with the Reuters/University of Michigan final September Index falling to 76.8 from 82.1 in August. Both the current situation index and the future expectation index were down sharply. Gallup's U.S. Economic Confidence Index last week was minus 16, slightly up from minus 18 the week before but still 4 points below the average for the year and significantly down from late May and early June.
Foodservice News This Week:
- McDonald's once again outperformed forecasts. The chain reported global same-store sales rose 1.9 percent in August. The consensus opinion was for comparable-store sales to be up 1 percent or perhaps a little less. Europe produced a surprisingly high same-store sales growth of 3.3 percent with the UK, France and Russia producing positive comps that offset a decline in Germany. U.S. store comps were up just 0.2 percent, including a boost from the Monopoly promotion. System-wide sales were up 2.8 percent or 4.7 percent when adjusted for currency fluctuations.
- Downtown Disney will introduce four food trucks in November, according to an article in the Orlando Business Journal. The trucks will represent a different section – The Magic Kingdom, Epcot, Hollywood Studios, and Animal Kingdom – and each will offer different fare.
- The most-visited quick service restaurants are burger chains according to a study by Emphatica. While 60 percent of those participating in the study visited burger chains, these operations ranked dead last in satisfaction with just 42 percent of those surveyed indicating satisfaction with their visit. Sandwich chains were second in visits (42 percent) but first in satisfaction (52 percent).
- Tipping remains in the news with the Wall Street Journal providing examples of upscale restaurants that have abandoned tips and increased menu prices by "roughly" 15 percent to increase salaries for the wait staff. A no tipping policy may make the staff feel more secure by having more reliable income and eliminates what some feel is "the most unpleasant aspect of the dining out experience" for customers. Some observers claim most people tend to tip the same regardless of the level of service while others worry that not having tips will result in a fall off in service. Some service employees don't like the system because it limits the amount of money they can make. There, too, there is the elephant in the room – tipped employees sometimes play fast and loose with reporting their income to avoid taxes so a straight salary may actually result in a loss of take-home pay.
- Fresh & Easy Markets were sold by Tesco to YFE Holdings, Inc. The small format chain, known for its extensive line of prepared take out foods, blamed bad timing for its failed entry into the U.S. market. Some retail experts were surprised that Tesco had found a buyer for the operation given the heavy financial loses Fresh & Easy incurred. The sale includes the company's distribution and production facility as well as 150 stores. None of the news relating to the sales indicated how many stores would be closed.
- A trio of private groups have purchased a significant equity position in The Coffee Bean & Tea Leaf. The infusion of capital should assist the 50-year old, 900-unit chain in expanding.
- GE Capital Franchise, which has indicated it will be reducing their its retail real estate investments, has sold 9 restaurants in the Dayton area to American Capital Reality. Included in the sale were Wendy's, Long John Silvers, Burger King and Pizza Hut. GE Capital purchased the properties from 2005 to 2007 and it is believed that there has been significant appreciation in their value.
- Krispy Kreme has announced a change in strategy. The chain will begin adding smaller units that will produce donuts just for retail sales in that store. Most Krispy Kreme operations are essentially factories with a small retail section. Most of the output was sold wholesale to super markets and other retailers.
- Growth Chains: Pie Five Pizza has 105 franchised units in development in 10 states. Fractured Prune Donuts projects 50 new store agreements will be signed in the next 6 months. Wingstop plans on building a minimum of 15 restaurants in the United Arab Emirates in the next few years. Bar Louie will add 100 new franchise restaurants as well as 100 company units in the next 5 years. Dunkin' Donuts inked development agreements that will open 150 restaurants in England, including 50 stores in London in the next 5 years. Blaze Fast Fired Pizza will open 8 new restaurants in California in the coming months with an additional 10 locations to open in the Los Angeles area in 2014.
- Comparable Store Sales Reports: McDonald's (up 0.2 percent) and Sonic (up 5.4 percent).
For details, as well as comp store sales for other chains, please click here for the Green Sheet.