Casual Restaurant Sales Crawl, Restaurants Play with Compensation Models and More

Casual restaurant sales in July slowed to a crawl. Restaurants experiment with different approaches to compensation, including price increases and no tipping plans, but finding the perfect system appears elusive. Activist Nelson Peltz of Trian lands two seats on Sysco’s board. Breakfast remains a terrific opportunity for foodservice. These stories and a whole lot more This Week In Foodservice.

It was a slow July for casual-dining chains according to Malcolm Knapp’s Knapp-Track. The same-store sales of the 50-plus chains that participate in the Knapp-Track study rose just 0.5 percent while same-store guest counts were down 1.1 percent. This would imply that check averages increased 1.6 percent, which is the smallest rate of increase in more than a year. Without mentioning names, Mr. Knapp stated that several brands experienced “check softness” in July.

For comparison, July 2014 Knapp-Track reported comp-store sales were down 1.0 percent and same-store guest counts were down 3.0 percent.

It is important to note that August comparisons will become tougher since comparable-store sales turned positive in August of 2014.

Malcolm Knapp’s information provided here is courtesy of Bank of America Merrill Lynch.

Economic News This Week

  • The Consumer Price Index in July increased just 0.1 percent showing inflation is not currently a threat to the economy. In the last 12 months the all items index rose 0.2 percent. The “core” index — the index without food and energy — also rose 0.1 percent. Food prices rose 0.2 percent while energy prices increased 0.1 percent. (For CPI data on foodservice prices, please see the section on Foodservice News This Week below.)
  • Initial jobless claims rose 4,000 to 277,000 in the week ending August 15. The 4-week moving average rose 5,500 to 271,500. Once again claim numbers were no cause for alarm regarding the jobs picture.
  • The National Association of Home Builders/Wells Fargo Housing Market Index rose 1 point in August to 61. Any number over 50 means more builders view conditions as good than see conditions as poor. The August reading was the highest since November 2005. The index measuring buyer traffic increased 2 points to 45 and the current sales conditions index gained 1 point to 66. The index for sales expectations in the next 6 months stayed steady at 70.
  • Existing home sales rose 2.0 percent in July from June, to a seasonally adjusted annual rate of 5.59 million. This is the third consecutive month existing home sales have increased. Sales were up 10.3 percent from July last year marking the tenth consecutive month sales were up on a year-over-year basis. July sales are at the highest pace since February 2007. Median existing home price was up 5.6 percent over July 2014. The National Association of Realtors expressed concern over increasing prices and falling inventories.
  • Housing starts in July rose 0.2 percent over June, to a seasonally adjusted annual rate of 1,206,000. Compared to July 2014 housing starts were up 10.1 percent. Single-family housing starts were at a seasonally adjusted annual rate of 782,000, up 12.8 percent from June.
  • July building permits fell 16.3 percent from June to seasonally adjusted annual rate of 1,119,000 but the rate is 7.5 percent over July 2014. Single-family building permits were at a seasonally adjusted annual rate of 679,000, down 1.9 percent from June.
  • The Empire State Manufacturing Survey crashed in August, falling 19 points to minus 14.9, its lowest level since April 2009 in the last recession. (Any number less than zero indicates a decline in business activity.) The Federal Reserve Bank of NY also reported that the new orders index fell 12 points to minus 15.7 while the shipments index declined a whopping 22 points to minus 13.8. These numbers are certainly depressing if not downright alarming.
  • The August Manufacturing Business Outlook Survey from the Federal Reserve Bank of Philadelphia increased to 8.3 from 5.7 in July. (Any number above zero indicates positive manufacturing activity.) The index has hovered in a low range after experiencing highs in late 2014. The New Orders Index fell by more than one point to 5.8 in August but the Current Shipments index rose sharply by 12 points to 16.7.
  • The Conference Board Leading Economic Index retreated by 0.2 percent in July to 123.3. A spokes- person for the Board noted that the decline came after 4 months of strong gains so the board still expects moderate economic growth the remainder of the year.

Foodservice News This Week

  • Restaurants experiment with different systems as minimum wage levels rise. The NYT reported that restaurants are trying different methods that they hope will increase pay for back-of-the-house employees while keeping the wait staff happy. One system is to place a mandatory tip charge to the check while other restaurants increase menu prices and adopt a no tipping policy. In some cases neither the staff nor the customers are happy so trials go on.
  • Trian Fund Management now has 2 seats on Sysco’s board. Trian, which is managed by activist investor Nelson Peltz, owns 7.0 percent of Sysco’s shares. Peltz and one of his partners will be the representatives on the Sysco board.
  • Why does breakfast offer great potential for foodservice operators? A research project by Instantly, Inc. found that over half those surveyed don’t eat breakfast every day of the week and 12 percent seldom eat breakfast at all. Time constraints are the number one reason consumers don’t eat breakfast. A high percentage of consumers expressed interest in having breakfast meals available all day, an opportunity a number of operators, including McDonald’s, are pursuing. Separately, Bloomberg News reported that all day breakfast at McDonald’s would increase sales by over 2.0 percent and generate up $31,000 in profit for each McD’s location.
  • Food away from home prices were flat in July according to the Consumer Prices Index from the Bureau of Labor Statistics. In the last 12 months food away from home prices have grown by 2.7 percent while grocery prices increased 0.9 percent.
  • Casual dining restaurants increased lunch traffic for the first time in five years. The NPD Group found that hamburger sales are what’s driving casual-dining restaurant visits with burger servings up 3.0 percent.
  • The Top 100 Chains in the U.K. experienced a 6.0 percent sales increase In 2014, down from 6.4 percent growth the previous year. The number of units grew by 4.3 percent. Limited-service restaurant sales were up by 5.9 percent and full-service sales rose 6.1 percent, according to a report from Technomic, Inc.
  • Brazil is a hot market for American chains even though the Brazilian economy is cold. Domino’s, Dunkin’ Donuts, Hooter’s, Johnny Rockets, McDonald’s, Outback, and Sbarro are among those operators the Wall Street Journal reports are expanding their locations in Brazil. Despite an economy that may be slipping into a recession, U.S. based companies think this is the time to grow because lease rates are bargains and local operators are pulling back. Also, Brazilians like to eat out and they like American brands.
  • The Service Employees International Union has taken their fight with McDonald’s overseas. The union’s organizers, along with McDonald’s employees, met in Brazil last week to lobby for higher wages and unionization.
  • Starbucks is expanding their evening beer and wine offerings. The coffee chain has confirmed it has applied for licenses to sell beer and wine in hundreds of locations across the country. The company has also increased the number of stores that sell their “small plates” menu items. The obvious goal is to increase traffic in the evening, normally a slow time for coffee houses.
  • A battle is being fought between bakery cafés and coffee cafés, according to a new report from Technomic, Inc. While the two segments represent different menu and service types, Technomic finds both are evolving in order to appeal to more consumers.
  • Marco’s Pizza’s new test kitchen is designed to develop new menu items and to train the firm’s people as well. The 3,500-square-foot facility enables the chain to replace the old PowerPoint program with actual hands-on experience.
  • US Foods has agreed to a $15.5 million settlement with the State of Florida for alleged “deceitful billing” of the Florida Department of Corrections.
  • Corporate Stirrings: Imo’s, a 90-plus-unit pizza chain in the St. Louis area, announced the company will be relocating its headquarters to a location in downtown St. Louis. Imo’s will also be building a distribution center there.
  • Growth Chains: Marco’s Pizza plans to quadruple the number of its stores in the next five to seven years. The chain will open 150 new locations this year and plans to open 400 stores in India over the next nine years. The Melt, a fast-casual restaurant chain headquartered in San Francisco, plans to open seven restaurants this year. Zaxby’s plans to open three locations in Nashville. Diversified Restaurant Holdings plans to open 10 restaurants in Michigan and Florida in the next five years. Arooga’s Grille House & Sports Bar has signed the largest franchise agreement in the company’s history for 50 restaurants in Georgia and Florida over the next eight years. PizzaREV has signed a franchising agreement that will bring 20 restaurants to Mexico. Corner Bakery Café will open 30 franchised units this year and has the goal of signing 50 franchisees who will each open two units per year. Popeye’s will open 115 to 150 stores during the remainder of this year. McDonald’s plans to open 20 new locations in Russia.
  • Comparable Store Sales Reports: Country Style Cooking down 7.9 percent, Diversified Restaurant Holdings (Buffalo Wild Wings up 4.2 percent and Bagger Dave’s up 2.5 percent), Popeye’s up 7.9 percent.

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

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