Pizza’s Continuing Popularity, Wendy’s Might Be Second Biggest Burger Chain and More

This week we look at the pizza market’s fascinating evolution, report on the continuing controversy over wages in the foodservice industry, explore restaurant industry employee turnover and much more.

Go back half a century and there were Americans who had never heard of pizza much less eaten one. Even restaurateurs of Italian derivation wouldn’t consider offering this menu item in their establishments because in Italy pizza was considered lower class food.

Now it seems study after study underlines the acceptance of “poor people’s food” in the U.S.: pizza is second only to hamburgers in terms of menu popularity. Technomic reports 75 percent of consumers eat pizza at least twice a month. Pizza consumption seems to have declined slightly in the last two years and Technomic speculates an improving economy may be the impetus for this change.

Researchers at CHD Expert found more than 98,000 restaurants are classified with a menu type of pizza, pasta and Italian. A deeper slice of the pie reveals more than 70,000 of these operations fall into the pizzeria sub-classification, according to CHD. Sales for all these restaurants total $62 billion annually, even though many individual restaurants report yearly sales of less than $500,000. In terms of pizza population, California is number one with 9,500 locations and, not surprisingly, New York is second with 8,400.

CHD Expert says that 53 percent of the pizzerias are independently owned while 84 percent of the Italian restaurants are independent. Due to their prowess in the online ordering arena, pizza chains seem poised to make a run at independent operators because research shows a growing number of consumers now use apps to place their orders.

The pizza business continues to evolve. For example, fast-casual pizza operators continue to grow by offering a variety of pizzas and perhaps selling a higher quality product, according to Technomic. A significant percentage of pizza buyers distinguish between brick oven pizza, wood-fired oven pizza, different types of crusts, and other variations.

Will pizza ever overtake burgers in popularity? It would seem doubtful but pizza offers one major advantage over the hamburger. When it comes to take out and/or delivery, the pizza pie travels a whole lot better.

Ecnomic News This Week

  • Initial jobless claims rose to 320,000, an increase of 5,000, for the week ending March 15. The 4-week moving average fell to 327,000. Overall, claims seem to be settling in around 330,000, down from about 350,000 last year.
  • U.S. Industrial Production rose 0.6 percent in February after falling 0.2 percent in January. February’s increase was the largest in 6 months and it represents a 2.8 percent bump from February 2013. Manufacturing grew 0.8 percent and mining grew by 0.3 percent while utilities output fell 0.2 percent after jumping by 3.8 percent in January. Capacity utilization also increased to 78.8 percent in February from 78.5 percent in January.
  • The New York Manufacturing Index improved to 5.6 in March from 4.5 in February. New orders and shipments both increased while unfulfilled orders, employment and delivery time dropped.
  • The Philadelphia Federal Reserve’s March Business Outlook Survey recorded a sharp upturn for manufacturing activity, rising to positive 9.0 after a reading of negative 6.3 in February. The new orders index jumped to 5.7 in March from negative 5.2 in February.
  • Existing home sales seem to be stuck in neutral. The National Association of Realtors reports existing home sales fell 0.4 percent in February to a seasonally adjusted annual rate of 4.6 million homes. The NAR attributes the decline to a variety of factors, including limited inventory, rising prices (up 9.1 percent over February last year), rising interest rates and, of course, the weather. According to the NAR, 16 percent of February homes sold were distressed sales, which was up from 15 percent in January but down from 25 percent in February 2013.
  • TheWells Fargo/National Association of Home Builders Index moved up just 1 point to 47 in March. Any score of less than 50 indicates more home builders have a negative than positive outlook about their prospects. Getting the blame were limited availability of lots, shortage of subcontractor labor, restrictive mortgage lending, and of course, the weather.
  • February housing starts fell to 907,000 from an upwardly revised 909,000 in January. The U.S. Department of Commerce data is annualized and seasonally adjusted. Naturally, the weather was the primary reason given for the decline. Building permits issued increased 7.7 percent in February vs. January. On an annualized basis this translates to more than 1 million new homes.
  • The Conference Board’s Leading Economic Indicator Index increased 0.5 percent in February after rising 0.1 percent in January.
  • The Gallup Organization reports its U.S Economic Confidence Index crept up to negative 18 for the week ending March 16. So far this year the index average has been negative 16.

This Week In Foodservice

  • Foodservice employment wages continue to be controversial. The Restaurant Opportunity Center, a self-described advocate for restaurant employees, released a study claiming that sates without a sub-minimum wage (a below minimum wage for tipped employees) generated more tipped employee jobs than those with a sub-minimum wage. The release did not make it clear what role the federal sub-minimum wage played in its findings. Meanwhile, a New York City McDonald’s franchisee paid $500,000 to settle a variety of wage violations.
  • The National Restaurant Association finds higher turnover among restaurant employees in 2013. Citing Department of Labor data, the NRA’s chief economist stated last year’s turnover was 62.6 percent up from 61.0 percent in 2012. In 2007, the year before the recession, turnover for the foodservice and accommodation industry was 80.9 percent. (Bureau of Labor Statistics does not separate lodging and foodservice in this particular study.) Turnover for the entire United States was 42.2 percent in 2013.
  • Restaurant noise levels can be dangerous to your health.Twin Cities.com reports “quite a few” restaurants in the area broke the 85-decibel level, including one that eclipsed the 90-decibel mark, indicating an environment that was not conversation friendly. For its part, OSHA says it’s safe to spend up to 8 hours working in an environment that exceeds the 85-decibel mark. Restaurant designs, such as having open kitchens, can contribute greatly to the overall noise level. Yet some restaurant operators prefer a certain “buzz” believing it makes their place cool.
  • Scott Hume, editor/publisher of Burger Business, crunched some numbers for the top five burger chains. And his simple chart yielded some fascinating stats. For example, 60 percent of McDonald’s sales are outside the United States. The no. 4 and no. 5 burger giants, Sonic and Jack in the Box are essentially U.S. concerns only while only 4 percent of Wendy’s sales come from outside the U.S. McDonald’s sales per company unit of $2.4 million annually eclipses all the other 4 chains but, somewhat surprisingly, Jack in the Box is a clear no. 2 at $1.6 million. Finally, Scott points out Wendy’s just may be the second largest burger chain in the United States.
  • Sales growth among chain restaurants slowed in 2013. The 500 largest chains in the U.S. increased sales in 2013 by 3.5 percent in 2013, down significantly from 2012 sales growth of 4.9 percent, according to Technomic. Limited-service restaurant chains in the 500 saw sales increase by 3.9 percent while full service restaurants grew by 2.4 percent.
  • New York is being invaded by foreign-owned chains, according to the New York Daily News. We tend to think of U.S. chains when we think of expansion but the Daily News reminds us this works both ways. Among the newcomers to our shores are Wok to Walk, an Amsterdam-based Asian concept; Café Bene, a South Korean chain; Wasabi, a U.K.-based sushi operation; Comebuy, a tea shop with 200 units in Europe and Asia; and Maison Kayser, a Paris-based bakery operation featuring baguettes.
  • According to a BusinessWeek writer restaurants find it easy to pass along food price increases while retail food stores have to swallow them. Experience indicates that many foodservice operators cringe at raising menu prices and don’t take such increases lightly. If nothing else, because reprinting new menus is a significant expense. In a related matter, Red Lobster is looking at a $30 million increase in shrimp costs this year due to production problems in Asia. The news story didn’t indicate what pricing action the chain might take.
  • Growth Chains: Luby’s opened its first dual concept store in Austin, Texas, featuring a Luby’s Cafeteria side by side with a Fuddruckers. Kono Pizza, which has more than 130 locations around the world, has 15 units under development in the U.S. Potbelly Sandwich plans on opening 35 to 40 company-owned units and 5 to 8 franchise operations this year. Pizza Studio has signed a master development agreement for 20 new locations in Phoenix over the next 5 years. TCBY and Mrs. Field’s Cookies have a master franchise Agreement for 28 stores in Malaysia, Indonesia, Singapore and Vietnam in the next 10 years. Dunkin Donuts has an agreement with a franchisee for 65 units in Brazil. The 7-Eleven chain plans to double their number of stores in Hawaii to over 100.
  • Comparable Store Sales Reports: Captain D’s (up 12 percent), Darden (Bahama Breeze up 0.8 percent, Capital Grille up 0.1 percent, Eddie V’s down 2.9 percent, LongHorn up 0.3 percent, Olive Garden down 5.4 percent, Red Lobster down 8.8 percent, Seasons 52 down 4.4 percent and Yard House down 0.1 percent) and Luby’s (all concepts up 2.5 percent, Luby’s Cafeteria up 4.4 percent, Fuddruckers down 2.7 percent, and Koo Koo Roo down 0.9 percent).

For details and same store sales of other chains, please click here for the Green Sheet.

Foodservice Supplier Financial Data: This week has updated financial reports for Cintas, Ecolab, and Libbey, Inc. Click here

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