The National Restaurant Association’s Restaurant Performance Index slid for the second month in a row in June, falling 0.4 percent to 102.0. This is a 9-month low for the overall index but any number over 100 still indicates industry expansion.
The Current Situation Index fell 0.2 percent to 102.5. Both same-store sales and traffic declined. Still, 64 percent of those surveyed said their same-store sales increased in June vs. June 2014. Operators who said same-store sales declined were virtually identical in May, with 20 percent saying their same-store sales declined vs. 19 percent in June.
In June, 47 percent of operators reported their traffic increased, which was down from 52 percent in May. However, just 28 percent of operators said they had their traffic fall in June while 31 percent of those said traffic fell in May.
The Expectations Index fell 0.6 percent in June to 101.5. This marks the fourth straight month operators have expressed increasing concern of what the future holds. Consumer confidence surveys also have found a negative outlook for the future. (Please see items on University of Michigan, the Conference Board, and the Gallup Poll in Economic News below.)
But, despite operators being nervous about the future, they continue to spend. In the past 3 months 64 percent of operators invested in expansion, remodeling or major equipment purchases. This is up from 60 percent of the operators in May. And, when asked if they planned a capital expenditure in the next 6 months, 59 percent said yes. Last month 54 percent reported similarly.
Certainly, the overall trend of this NRA research is troubling but it appears that operators are continuing to invest in their operations.
Economic News This Week
- The U.S. economy grew slowly in the second quarter with the advance estimate from the Bureau of Economic Analysis placing real Gross Domestic Product growth at 2.3 percent. This is below that of last year’s modest growth and a half a point below forecasts. Sluggish growth is thought to be the result of a number of factors including the strong U.S. dollar, low consumer spending and businesses’ lack of investment. Thus, the economy continues to limp along making some feel as if we are still in a recession. About the only good news in the report was that first quarter GDP was increased to 0.6 from minus 0.2 percent.
- Real consumer spending was flat in June while real disposable income increased 0.2 percent for the month. Both spending and income were significantly below forecasts.
- Initial jobless claims remained low in the week ending July 25, rising by 12,000 (off a 40-year low) to 267,000. The 4-week moving average fell 3,750 to 274,250.
- June construction spending increased by 0.1 percent from May but was 12 percent above June 2014. Residential construction was up 0.4 percent over May.
- July car and light truck sales rose 5.3 percent with all major manufacturers seeing sales increases. The industry is now on pace to sell over 17 million vehicles for the first time since 2001. Moreover, sales of pickups and large SUVs were strong. These vehicles cost more and are more profitable for both the manufacturers and their dealers. Lower gasoline prices are influencing these sales at the expense of smaller, more fuel efficient cars.
- The minimum wage battle continues with little agreement on its impact. Some hold that increasing the minimum wage will help workers without hurting employment while other research says there will be significant job losses. There is little agreement on whether increasing wages will result in price increases that will harm businesses sales. Some experts say that a market like New York City can absorb wage increases while the same increase upstate could be very disruptive. Then there is data showing that only small percentage of the poor make minimum wage. As a NYT columnist says it “is a very complicated situation.”
- The Conference Board Consumer Confidence Index fell significantly and unexpectedly in July, dropping to 90.9 from 99.8 in June. The forecast had been for the Index to stay around 99. The Present Situation Index fell from 110.3 in June to 107.4 while the Expectations Index plunged to 79.9 in July from 92.8 in June. A spokesperson for the Conference Board said that economic turmoil in China and Greece appears to have shaken consumers but that index remains “at levels associated with an expanding economy and a relatively confident consumer.”
- The Gallup U.S. Economic Confidence Index continued its “gradual downward slide” falling to minus 15 for the week ending July 26. This marks a 10-month low for the overall index. The decline was due to a 4-point drop in the current conditions index. The economic outlook component of the index was minus 18, identical with the previous week.
- The Reuters/University Of Michigan Consumer Sentiment declined in July, dropping to 93.1 in the final reading. This is down from 96.1 in June but up considerably from 81.1 last July. The Current Conditions Index slid a bit to 107.2 from 108.9. The Expectations Index dropped to 84.1 from 87.8 in June. In the eight months beginning with December 2014 the overall Index has averaged 94.5 the highest since eight month average since 2004.
Foodservice News This Week
- Group purchasing organizations are becoming more important to operators, according to a recent study by Technomic, Inc. which forecasts GPOs will grow 4 percent to 6 percent through 2017. The research also found that almost 60 percent of operators surveyed view GPOs as strategic partners rather than just intermediaries. This is almost a 15 percent increase since 2012.
- The number of independent restaurants declined by 3 percent, according to The NPD Group’s Recount survey. The data is for the year ending March 31, 2015. Even though chains added over 2,000 units last year, the drop in independent restaurants by 10,919 locations was enough to pull down the restaurant unit count by 1 percent. NPD noted that fast-casual restaurants grew by 7 percent. Further, the number of independent quick-service restaurants was constant so the independent decline was all in the full-service segment, which includes casual, mid-scale/family dining and fine dining.
- McDonald’s is doing a major remodel of its Japanese stores. The new design features an open kitchen, which can be seen by people outside the restaurant. McDonald’s is trying to regain consumers’ trust after a human tooth and pieces of plastic were found in food in Japan in January. This led to a severe decline in revenue, which has continued through the first half of the year.
- Restaurant Brands International’s Burger King and Tim Hortons are both coming on strong. And that could pose a problem in the future said Scott Hume, publisher of Burger Business. It might be possible that as Tim Horton’s expands in the U.S. that the two brands will begin to cannibalize one another. On the other hand, having customers choosing between BK and Tim Horton’s is kind of a good problem to have.
- Buffalo Wild Wings announced menu price increases with alcohol prices rising in August and food prices increasing in November. BWW had strong sales in their most recent quarter but profits dropped 9 percent due to higher food and labor costs.
- C-store distributor Eby-Brown Co. has appointed a vice president of foodservice strategy and education. Industry veteran Matthew Mandeltort will provide strategic direction for the distributor’s foodservice programs and create greater foodservice value for their customers.
- Wendy’s re-entry into Japan is moving slowly. The hamburger chain announced in 2011 they were planning on opening 100 stores in 5 years but so far have only 2 units. The company blames the lack of good real estate at acceptable prices. Wendy’s is considering having joint locations with Japanese chain First Kitchen and/or positioning their brand as a fast-casual concept.
- Corporate Stirrings: Applebee’s is now a 100 percent franchised operation. Applebee’s announced they sold its 23 corporate restaurants in the Kansas City area to American Franchise Capital LLC. American Franchise Capital now operates 56 Applebee’s. Jamba, Inc. announced they have already exceeded their 2015 “re-franchising” goal of 115 stores with 150 locations re-franchised so far this year. Further, the company expects to have 74 stores in California re-franchised by the end of the year. Jamba expects to be over 90 percent franchised organization by the end of the year and to have generated $60 to $70 million in cash from the re-franchising program. Two Carl’s Jr. franchisees in Arizona filed for Chapter 11 bankruptcy. The companies are owned by Carl’s Jr. founder Carl Karcher’s grandchildren. The number of units covered by the bankruptcy filing was not disclosed.
- Growth Chains: Arby’s is on track to open 60 new restaurants this year and remodel 160 more. McDonald’s plans to open 100 units along the German expressway system. Teriyaki Madness will open 5 units in Florida. Tropical Smoothies has signed 73 franchise agreements so far this year. Burger King plans on opening 100 more locations in Japan by the end of 2017. Hurricane Grill & Wings has a development agreement for 25 locations in 5 countries in Europe. Pie Five has a franchise agreement for 25 restaurants in Arizona, New Mexico and Missouri. Boston Market has signed on with the Army and Air Force Exchange to open restaurants on military basis across the country. Del Taco has signed a 10-unit development agreement for the Knoxville area. Beef O’Brady’s plans on opening 8 to 10 new restaurants this year while sister company Brass Tap plans on opening 15 to 20 new locations.
- Comparable Store Sales Reports: Applebee’s up 1.0 percent, Arby’s up 7.6 percent, Bravo Brio Restaurant Group (total down 1.8 percent, Bravo down 2.15 and Brio down 1.6 percent), Buffalo Wild Wings (company-owned up 4.2 percent and franchised up 2.5 percent), Burger King up 7.9 percent, CEC Entertainment up 3.0 percent, Denny’s (system up 7.3 percent, company-owned up 7.9 percent, and franchised up 7.2 percent), Fiesta Restaurant Group (Pollo Tropical up 4.3 percent and Taco Cabana up 5.6 percent), IHOP up 6.2 percent, Kona Grill up 1.0 percent, Panera Bread (system up 1.8 percent, company-owned up 2.4 percent and franchised up 1.1 percent), Peter Piper Pizza up 5.3 percent, Ruth’s Chris up 4.2 percent, and Texas Roadhouse (company-owned up 8.2 percent and franchised up 6.9 percent.)
For details and same-store sales of other chains, please click here for the Green Sheet.