This Week in Foodservice: RPI Up Along with GDP, Labor Market Tightens and Much More

The Restaurant Performance Index chalked up a solid gain in July and operators continued to invest in equipment. GDP was up 3.7 percent in the second quarter. As the economy improves, operators find the labor market tightening. A study finds independent hamburger restaurants grew faster than the chains. These stories and a whole lot more This Week In Foodservice.

The National Restaurant Association reported the Restaurant Performance Index rose 0.7 percent to 102.7 in July. This is the first increase in the Index in three months and marks the 29th consecutive month the Index has signaled the industry is in growth mode.

The Current Situation Index jumped an impressive 1.2 percent in July. Operators’ same-store sales were higher vs. July 2014 with 73 percent saying same-store sales were up. In June, 64 percent said same-store sales had increased. Traffic also rose over July 2014 with 59 percent saying their business served more customers than in July 2014. In June, 47 percent of the respondents said their traffic had increased.

When asked about the future, operators were less optimistic. Just 40 percent of operators expected higher sales in 6 months. This is down from 42 percent in June.

As for the purchasing outlook, operators remain willing to invest in their businesses. A hefty 72 percent of operators reported they had made a capital investment for equipment, expansion and/or remodeling. This is up from 64 percent reporting similarly in June.

Operators indicated they intend to continue to invest, with 66 percent indicating they will spend money for equipment, expansion and/or remodeling in the next 6 months. This is up from the 59 percent who reported the same in June.

Overall, the NRA has found the industry had very positive results in July.

Economic News This Week

  • Gross domestic product rose 3.7 percent in the second quarter, according to the Bureau of Economic Analysis’ second estimate. This is up significantly from the Bureau’s first estimate of 2.3 percent and also higher than previous forecast estimates of 3.3 percent. One economist called the revised estimate a “massive amount of momentum” for the economy while others warned second quarter GDP is “a look backward” that doesn’t take into account such negative factors as China’s economic distress.
  • Personal income rose 0.4 percent in July while personal spending rose 0.3 percent.
  • Initial jobless claims declined by 7,000 to 271,000 for the week ending August 22. The 4-week moving average of claims rose 1,000 to 272,500. Thus, layoffs again remain under historical averages, a good sign for the employment market.
  • The National Labor Relations has broadened the definition of direct employment. In a widely anticipated move the board voted 3 to 2 along party lines that parent companies are responsible for contract and franchise workers. This overturns a decades old policy that only the franchisee had any direct responsibility for workers. This will make union organization considerably easier.
  • New single-family home sales rose 5.4 percent in July over June sales. The U.S. Census Bureau estimates that the number of homes sold were 507,000 at a seasonally adjusted annual rate. Compared to July 2014, single-family home sales were up 25.8 percent.
  • Home prices edged up again in July with the S&P Case Shiller Composite Index for 20 metropolitan areas rising 5 percent in June 2015 over June 2014. The May index was up 4.9 percent. Experts are cautious about the future of home prices, however, given the recent stock market reverses and the possibility of the Federal Reserve raising interest rates.
  • Durable goods orders rose 2.0 percent in July, according to the Commerce Department’s advance report. Shipments of manufactured durable goods rose 1.0 percent led by transportation equipment. Unfilled orders rose 0.2 percent. Non-defense orders for capital goods – those goods used to manufacture other goods – were up 1.1 percent.
  • The Conference Board Consumer Confidence Index bounced back In August after declining in July. The Index now stands at 101.5 after falling to 91.0 in July. The Present Situation Index rose to 115.2, up from 104.0 in July. Consumers remained nervous about the future though the Expectations Index also advanced, rising to 92.5 from the July reading of 82.3. (Note – this study was done before the recent drop in stock prices.)
  • The Reuters/University of Michigan Index of Consumer Sentiment’s final reading for August retreated slightly from the initial result. The Index finished at 91.9, down from a 92.9 preliminary reading and down from July’s 93.1 final reading. The Current Economic Conditions Index fell to 105.1 from 107.2 in July while the Index of Consumer Expectations dropped to 84.1 in July. It appears from the University of Michigan’s press release the study was conducted before the severe stock market turmoil hit on August 24.

Foodservice News This Week

  • A tighter labor market equals higher wages for fast food employees. The Department of Labor reports that non-supervisory employees averaged $9.62 an hour in June, up 3.3 percent from June last year. A Chipotle executive noted the economy has improved, more restaurants are opening and there are fewer job applicants than in past years. Chipotle will have a hiring day on September 9 with the goal of adding 4,000 new workers.
  • Independent hamburger restaurants expanded faster than chain hamburger restaurants in 2014, according to a study by CHD Expert. Independent burger restaurants make up 14 percent of the burger market and almost half of the burger chains are fast-casual according to the report.
  • Some online services will get restaurant customers a difficult reservation at top line restaurants but there is a charge – either a flat fee or percentage of the check. The percentage is generally 20 percent to 30 percent. Since the per person check average at many of these upscale eateries can run $100 or more, this is a hefty sum. For not so “in” spots, of course, booking online could be as little as $5.00. And there are thousands of restaurants where the management would love to have diners book online for free. But some customers gladly pay the price figuring they’ll have to pay one way or another to get a table, paying a concierge service or slipping a hefty tip to the restaurant staff. And, the restaurants get a percentage of the reservation charge so they are in a win-win situation.
  • Corporate Stirrings: Frisch’s Restaurants announced the completion of the acquisition of the chain by NPD Partners I, L.P. Frisch’s stock will be delisted from the New York Stock Exchange this month. Illinois Tool Works announced that their food equipment group organic sales revenue increased 4.0 percent in the second quarter of this year, mostly due to 9 percent growth in North American equipment sales.
  • New York City will require food waste composting from hotel restaurants and arenas as well as food wholesalers. These businesses must separate their food waste from trash and recycling and hire a company to compost it. They also have the option of composting it themselves on-site. The announced goal of the city is to eliminate all waste being sent to landfills by 2030.
  • Target will test new foodservice concepts in at least 14 of their stores starting next month. Most of Target’s stores already have a café so the new operations will replace existing foodservice sections. Fast-casual chain Freshii will go in nine stores and Pizza Hut will offer “artisan pies” in three others. The goal is not to boost traffic — about 40 percent of Target customers visit the café — but to show their clientele they are serious about health and wellness.
  • Pizza Patron will hit $46 million in sales this year. The chain, which targets Hispanic customers, now has 92 stores and plans to open 12 stores this year but has closed 4. In 2013 the company suspended franchise sales, closed 20 stores and opened 7 new ones with existing franchisees. In 2014 it closed 7 stores and opened 8 as it continued to prune underperforming units.
  • Amazon is testing a restaurant food delivery service in Seattle. The test is being run only among Amazon employees and the company will not reveal which restaurants or how many are included in the test.
  • Growth Chains: Taco John’s announced the chain will open 15 locations in Indianapolis. Papa Murphy will open 4 new locations in Jacksonville, Fla. Krispy Kreme has an agreement to open 10 stores in Myanmar. Johnny Rockets has an agreement to open 100 restaurants in China. Marco’s Pizza is targeting the South Eastern U.S. for development with a goal of building 300 restaurants in the region. Diversified Restaurant Holdings, owner of Bagger Dave’s and a major Buffalo Wild Wings franchisee, will open 8 new restaurants this year, 3 of which are already operating. Coffee Bean & Tea Leaf has an agreement with a South Korean retailer to open more than 700 stores in China.
  • Comparable Store Sales Reports: Zoe’s Kitchen up 5.6 percent.

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

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