Published on Tuesday, 01 July 2014
Written by Jerry Stiegler
This week we report some very good news from the National Restaurant Association, look at a first quarter that was even worse than first feared for the U.S. economy, discuss how Illinois will require training of all food handlers, examine the impact of a $15 an hour minimum wage on Seattle businesses and a whole lot more.
The National Restaurant Association’s Restaurant Performance Index advanced nicely in May, rising to 102.1, its highest level in more than 2 years. The index has now been above 100 for 15 straight months indicating continuing expansion in the restaurant industry.
A 0.7 percent increase in the Current Situation Index, which is more data driven than the Expectations Index, helped fuel the growth. The Current Situation Index came on strong in May with 65 percent of the operators surveyed reporting higher same-store sales vs. May 2013. Customer traffic also looked good in May with 47 percent reporting an increase. The Expectations Index remained unchanged in May holding at a level of 102.2.
While the numbers do not show spectacular expansion, the overall trend remains very promising.
Economic News This Week
- For its third estimate, the U.S. Bureau of Economic Analysis (BEA) revised its first quarter gross domestic product projection downward again to minus 2.9 percent. This decline from the second estimate of minus 2 percent was prompted in large part by revised consumer spending growth of just 1 percent. A bigger drop in U.S. exports, higher imports and smaller buildup in inventories also contributed to the revised GDP figure. The BEA also had assumed that the introduction of the Affordable Care Act would result in increased healthcare spending, which instead declined. The 2.9 percent decline in GDP is the worst reading in a non-recession period since 1956.
- First-time jobless claims for the week ending June 21 totaled 312,000, a decline of 2,000. The 4-week moving average was nearly identical at 314,250. For the last few weeks first-time jobless claims having been hovering near a post-recession low.
- Personal spending increased 0.2 percent in May, driven mostly by auto sales, per the U.S. Department of Commerce. Personal Income grew 0.4 percent.
- Existing home sales climbed to 4.89 million in May on an annualized seasonally adjusted basis from 4.66 million in April. This represents an increase of 4.9 percent. However, the National Association of Realtors points out sales were down 5 percent from May 2013 while May home prices this year were up 5.1 percent from May 2013. A spokesperson for the association said they believe the increase in May 2014 sales was due to a greater number of homes on the market, price increases held down by the increased inventory of homes, and a slight decline in mortgage rates.
- New home sales jumped 18.6 percent in May to a seasonally adjusted annual rate of 504,000. This is significantly better than May 2013 with a 16.9 percent increase.
- Led by a decline in defense spending, durable goods orders fell 1 percent in May. Excluding defense orders, new orders for durable goods were up 0.6 percent.
- The Chicago Area Production Manufacturing Index retreated slightly in June to 62.6 from a 7 month high in May of 65.5. Any reading of more than 50 indicates expansion.
- The Conference Board’s Consumer Confidence Index rose to 85.2 in June, up from 82.2 in May. The June reading is the highest the Conference Board Index has been since January 2008 but remains far below the base reading of 100 in 1985.
- The Reuters/University of Michigan Consumer Index rose to 82.5 in its final June reading, up from 81.9 in May. The Current Situation Index was up while the Expectations Index declined.
- The Gallup Organization’s U.S. Economic Confidence Index dipped to minus 16 for the week ending June 22. The index has hovered in a narrow 6 point range since March, running between minus 13 and minus 18.
Foodservice News This Week
- Illinois will require food handler training effective July 1. California was the first state to require all foodservice employees who work with food equipment, utensils, and food contact services to receive basic training through programs accredited by the American National Standards Institute. While the law takes effect July 1, no fines will be assessed for violations until January 1.
- Seattle employers are wrestling with the prospect of a $15 an hour minimum wage. Many employers are uneasy about the law’s impact and continue to discuss possible layoffs, price increases, service charges and other unpalatable moves. The law increases the minimum wage in a series of steps and depends in part on whether employees are offered health insurance. And, the law treats franchise operations as large businesses, a provision which is being challenged in court.
- C-store foodservice sales growth slows. According to the NPD Group foodservice sales in convenience stores grew 1 percent in 2013 after increasing by 2 percent in 2012 and 3 percent in 2011.
- McDonald’s has taken to the roads on the island of Malta with a traditional Maltese produce truck painted in McDonald’s colors and loaded with potatoes, onions, tomatoes and lettuce. The truck stops at outdoor markets where McD’s employees pass out info on the company’s commitment to freshnfoods. There are just 10 McDonald’s locations on Malta but Scott Hume, publisher of Burger Business, speculates the program’s tag line – “100 percent Real” – may be suitable for other markets.
- Corporate Stirrings: Food Management Partners purchased Furr’s Fresh Buffet out of bankruptcy. El Pollo Loco filed for its initial public offering in the amount of $100 million. The two private equity firms that own Del Taco are said to be exploring the sale of the 500-plus unit quick-service chain.
- Round Table Pizza has introduced a new fast-casual concept. Called Fresh Pixx, the Dublin, Calif., operation features a 30-foot-long open kitchen counter that store employees guide consumers down to build custom pizzas and salads.
- KFC rolled out a new store design in China. Battling back from antibiotic and bird flu incidents, KFC will remodel 130 locations this year to give the stores a more upscale look to attract a middle price diner. The new décor coupled with the addition of Wi-Fi in 2,000 of KFC’s 4,500 Chinese stores will hopefully encourage patrons to linger longer and conduct business meetings.
- Olive Garden expanded its redesign efforts. Admitting that the chain’s last design — the Tuscan farm house look — didn’t work, Darden’s “Revitalia” will feature both interior and exterior renovations with new logos, signage, more natural up-to-date elements along with new plates, silverware, service utensils, and more up-to-date music.
- Quick Trip launched a fresh, made-to-order menu. The operator of nearly 700 C-stores in 11 states calls the extensive new menu program, which includes flat breads, toasted sandwiches, pizza, specialty coffees, frozen treats and smoothies the “QT Kitchen.” QT Kitchens are operating in dozens of stores in the Tulsa, Greenville-Spartanburg-Anderson and Charlotte markets. The chain has extensive expansion plans for the concept.
- Growth Chains: Cafebene will open 11 locations in New York City. Uncle Maddio’s signed agreements with 3 franchisees for a total of 15 units in Alabama. Maui Wowie’s CEO said that the chain has 50 new locations set to open this year. Wingstop’s Indonesian partner plans to open 100 locations in the next 7 years. Wok Box Fresh Asian Kitchen will open 44 restaurants in Florida in the next 6 years. Sarpino’s Pizza plans to open 65 stores this year and 350 in the next 3 to 5 years.
- Comparable Store Sales Reports: Sonic Drive Ins (system up 5.3 percent, company-owned up 5.2 percent and franchised up 5.3 percent.)
For details and same-store sales for other chains, click here for the Green Sheet