McDonald's Franchisees Are Unhappy, Burger King Founder Not a $15 Fan and More

U.S. retail sales turned positive in March and restaurant sales did fairly well. For the first time, restaurant sales exceeded those of supermarkets. McDonald’s franchisees are not in a positive frame of mind. Burger King’s founder thinks $15 an hour minimum wage will kill the dollar menu. These stories and a whole lot more in This Week in Foodservice. 

U.S. retail sales increased 0.9 percent in March after posting a 0.5 percent decline in February. Compared to March 2014, sales grew by 1.3 percent.

Excluding motor vehicles and parts, March 2015 retail sales increased 0.4 percent over February 2015 and 0.3 percent over March 2014. Restaurant sales did slightly better than the overall market, posting a 0.7 percent increase compared to February and an even stronger 7.7 percent increase over March 2014.

As we caution readers every month, the Census Bureau data comes with certain caveats and limitations. The report consists of advance data based on a small sample, which means the sales numbers can be, and frequently are, revised. Second, the Bureau surveys only restaurants and drinking places. The sales data is adjusted for seasonal changes, weekends and holidays but not for menu price inflation.

Economic News This Week

  • The Producer Price Index for total final demand goods and services rose 0.2 percent in March after declining for 4 consecutive previous months. The index for final demand goods was up 0.3 percent led by a 1.5 percent increase in energy prices. Final demand food prices were down 0.8 percent. Final demand service prices were up 0.1 percent.
  • The Consumer Price Index increased 0.2 percent in March on an adjusted basis. Over the last 12 months the all items index has declined 0.1 percent. In March the energy index increased 1.1 percent while the food index fell 0.2 percent. The core index – that is, without energy and food – was up 0.2 percent.
  • The Empire State Manufacturing Survey fell 8 points in April to minus 1.2. The new orders index fell to minus 6.0 but the shipments index climbed to 15.2. Labor market indicators show higher employment but a shorter work week. Capital spending and technology spending both rose, which indicates more optimism on the part of manufacturers.
  • The Philadelphia Federal Reserve Manufacturing Business Outlook Survey for April rose to 7.5 vs. 5.0 in March. (Any reading above zero shows expansion.) Although still in positive territory, the New Order Index declined by three points compared to March. In contrast, the shipment index increased six points but remains in negative territory. The current employment index increased 8 points rising to 11.5, the highest reading in 5 months.
  • Industrial production dropped 0.6 percent in March. For the first quarter of the year industrial production was down 1.0 percent. Capacity utilization declined by 0.6 percent to 78.4 percent, a rate that it is 1.7 percentage points below its long run (1972-2014) average.
  • Initial jobless claims totaled 294,000, an increase of 12,000 for the week ending April 11. The 4-week moving average was 282,750, an increase of 250 claims. Thus, the number of new claims remains in the “acceptable” level.
  • Housing starts in March were estimated to be 926,000 at a seasonally adjusted annual rate. This is 2.0 percent above February but 2.5 percent below March of 2014. Single-family housing starts increased 4.4 percent over February. Building permits in March were at a seasonally adjusted annual rate of 1,039,000 which is 5.7 percent below February but 2.9 percent above March of last year. Single-family permits issued were up 2.1 percent over February.
  • The Conference Board’s Index of Leading Economic Indicators grew 0.2 percent in March. Building permits were the weakest part of the index but average working hours and manufacturing new orders have also limited growth over the past 6 months according to the Conference Board.
  • The preliminary Reuters/University of Michigan April Consumer Sentiment Index hit 95.9, up from 93.0 in March.
  • The Gallup Organization’s U.S. Economic Confidence Index rose 1 point last week to minus 3. The index has been in a minus 2 to minus 4 range for the last 8 weeks.

Foodservice News This Week

  • The Census Bureau’s March retail sales figures featured an interesting statistic. For the first time, restaurants and bars had higher sales numbers than grocery stores. The Census Bureau reported on an adjusted basis restaurants and drinking places sales were $50.384 million vs. grocery store sales of $50.089 million. Unadjusted, the sales figures were $52.349 million vs. $49.688 million respectively. No one claims consumers are spending more money at restaurants than for food at home since consumers also buy groceries at warehouse stores, C-stores and specialty food stores. One month does not a make a trend so March could be a fluke. It is interesting to note, however, restaurant sales have been growing faster than supermarket sales.
  • Consumer prices for food away from home increased 0.2 percent in March. In the last 12 months, food-away-from-home prices were up 2.9 percent while food-at-home prices were up 1.9 percent for the same period.
  • Some McDonald’s franchisees are despondent over the company’s direction, according to the latest survey from Janney Capital Markets. The investment firm has been surveying McDonald’s franchisees for 11 years and reports that the franchisee’s relationship with McDonald’s corporate is at the lowest level ever. On a scale of 1 to 5 with 1 being poor and 5 being excellent, franchisees ranked their relationship with the parent company at 1.48. It is important to note that there were 32 franchisees responding to the survey out of a total of 3,100 U.S. franchisees. Also, it is possible that unhappy franchisees may be more likely to participate in the study.
  • Add Olive Garden to the list of restaurants with tableside tablets. The 7-inch touch screen tablets will allow customers to order drinks, appetizers and deserts; split bills; pay with credit and debit cards; and plays games. Olive Garden says in testing the tablets that tips were higher, dining times faster and guest satisfaction scores were higher.
  • Burger King founder predicts the end of the dollar menu if the $15 an hour minimum wage happens. David Edgerton thinks there will be “slow and gradual” shift toward pricier menu options. He went on to say that employees will not get $15 hour but they may see $12 or $13.
  • Corporate Stirrings: Habit Burger Grill announced a secondary offering of 5 million shares priced at $30.96 a share. The company will not sell any shares and will not receive proceeds from the sale. Panera Bread signed letters of intent to sell and franchise 73 cafes, which indicates the company is well on the way to reaching its goal of refranchising up to 150 locations this year. P.F. Chang’s Canadian licensee filed for reorganization under bankruptcy protection.
  • C-store chain Wawa opened its first store with indoor seating. The unit, which is located in Philadelphia, underlines the company’s commitment to expanding their foodservice business.
  • Growth Chains: Smoke’s Poutine, headquartered in Canada, plans to open 1,300 restaurants over the next 5 years with 800 of them in the U.S. Cinnaholic will open eight new franchised bakeries over the next few months. Wok Box signed a franchise agreement for 37 restaurants in Northern California over the next 10 years. Dunkin’ Donuts has signed a multi-unit development agreement with a new franchisee for 10 stores in the Minneapolis area.
  • Comparable Store Sales Reports: Just one new report this week – Carrols Restaurant Group is up 8.4 percent. We are entering “earning season” and there will be a lot of new reports in the next few weeks.

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

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