Published on Tuesday, 08 September 2015
Written by The Editors
McDonald’s all day breakfast requires new kitchen equipment. U.S. manufacturing struggles while employment data is mixed. Foodservice operators continue to hire. Subway plans a major shift in their strategy. These stories and a whole lot more This Week In Foodservice.
McDonald’s decision to offer some breakfast items all day became a major news story last week. The Wall Street Journal found that this seemingly simple change required some fairly complex operational and equipment changes. Operators now need two different grills because raw eggs cannot come in contact with hamburgers. The company is using a grill just for eggs that sits on a roller cart and positioned depends on the layout of the kitchen.
Most McDonald’s locations also needed new toasters because hamburger buns and muffins toast at different temperatures. Most McDonald’s operators are buying new toasters, which are two toasters connected together that can toast buns and muffins at the same time.
The Journal says that many units have already added the new equipment at a cost of $500 to $5,000 depending on what equipment they already had installed.
The typical McDonald’s restaurant had about 25 percent of its sales from the breakfast menu. An analyst with RBC Capital Markets estimates that could rise to 29 percent with the new all-day offerings, at least some of which could be new business.
Economic News This Week
- The Institute For Supply Management’s Manufacturing Index For August found manufacturing activity expanded for the 32nd consecutive month. However, activity expanded at a slower rate with the Index dropping from 52.7 in July to 51.1 in August. (Any reading over 50 indicates expansion.) The August growth rate was the lowest since May 2013. The New Orders Index declined from 56.5 in July to 51.7 while the Production Index fell to 53.6 from 56 in July. The Employment Index dropped to 51.2 from 52.7 in July. The Exports Index dropped to 46.5 from 48 in July. The strong U.S. dollar as well as economic distress in China and other countries gets the blame for falling exports. Of the 18 manufacturing industries studied by the Institute, 10 reported growth in August.
- The Chicago Manufacturing Index backed off slightly in August dropping to 54.4, down from 54.7 in July. (Any number over 50 indicates business expansion.) Both Production and New Orders were down from July but both remained above their 12-month averages and were considerably above their depressed levels seen between February and June. While the Employment Index rose in August to the highest level since April, it remained in a contraction mode.
- New orders for manufactured goods rose 0.4 percent, according to Census Bureau’s full report for July. Shipments of manufactured goods fell 0.2 percent while Unfilled Orders increased 0.2 percent. New orders for manufactured durable goods rose 2.2 percent while new orders for manufactured non-durable goods fell 1.3 percent.
- Labor productivity showed a nice increase in the second quarter rising 3.3 percent on an annual basis. The Bureau of Labor Statistics reported that output rose 4.7 percent and hours worked increased 1.4 percent. Unit labor costs decreased 1.4 percent, reflecting a 1.8 percent increase in hourly compensation and 3.3 percent drop in labor productivity.
- The ADP National Employment Report said the U.S. private sector added 190,000 new jobs in August. The payroll processing company reported that service industries accounted for 173,000 of the jobs and that small employers — those with fewer than 50 employees — hired 85,00 of the total new employees.
- Initial jobless claims increased 12,000 to 282,000 in the week ending August 24. The less volatile 4-week moving average rose 3,250 to 275,500. For months now this data continues to hover at historical lows indicating a relatively healthy job picture.
- The employment picture was mixed in August, according to the closely watched monthly report from the Bureau of Labor Statistics. Payrolls increased 173,000. This was disappointing as the economy had been averaging 247,000 new jobs per month over the last year. And, the total increase was the result of an unusually large jump in government employment of 33,000 so private sector employment rose just 140,000 for the month. However, several observers noted that August employment numbers are frequently revised. June and July payrolls were revised upwards by a total of 44,000. Also on the positive side, unemployment moved down to 5.1 percent from 5.3 percent in July. Some economists define full employment as 5.0 percent unemployed. The number of long-term unemployed remained high as did the number of part-time workers who preferred full-time employment. (For hiring trends in the foodservice industry, please see the Foodservice News This Week section below.)
- U.S. car and light truck sales enjoyed a strong August with volume hitting 17.8 million vehicles on an annualized basis. This compares to 17.3 million in August 2014 and the highest since July 2005. This year could be the best the auto industry had since 2000.
- Construction spending in July rose 0.7 percent over June. Spending increased 13.7 percent from July 2014. In the first 7 months of this year construction spending is up 9.3 percent over the same period last year. The Census Bureau also said July residential construction spending increased 1.1 percent from June.
Foodservice News This Week
- Once again the foodservice industry was one of the leading hirers. In August foodservice employment rose by 26,100, which represents 18.5 percent of all the new positions added during the month.
- Subway plans significant changes including redesigning restaurants and stressing their menu is fresh and healthy. Subway actually had the aura of fresh and healthy fast food decades ago but lost it to competitors.
- A computer glitch in Olive Garden’s on-table tablets is shorting wait staffs’ tips. An Olive Garden spokesman called the problem “minor,” questioned the employees’ estimates of how much money they had lost, and said the company would not review past bills to reimburse the staff. The company said they are “working as fast as they can” to fix the problem.
- The Manitowoc company has filed to split the company, separating the foodservice and crane sections. The company has filed a Form 10 with the Securities and Exchange Commission that advises the foodservice division will be a tax-free spinoff.
- McDonald’s UK will offer table service in October. All 1,250 locations will begin table service, which is essentially a fast-casual system, as opposed to full service. Customers will place their orders at a kiosk, customizing menu items if they wish and then paying for their meal. They will be given a device that flashes when the order is ready, which tells the McDonald’s staff where to deliver the meal.
- Will McDonald’s all day breakfast drive egg prices higher? The supply of fresh eggs is already tight due to a major outbreak of bird flu earlier this year. As recently as August 31 eggs were selling for $2.45 a dozen up from $1.35 a dozen in August 2014. A restaurant stock analyst at Morning Star says McDonald’s has “the potential to disrupt the marketplace.”
- White Castle announced the chain will offer all day breakfast. A company spokesman said the company has always offered lunch and dinner menu items in the morning and that their customers “have been begging” for breakfast items throughout the day.
- Chipotle Mexican Grill is expanding delivery to college campuses in partnership with Tapingo, a food delivery operation. Chipotle delivery will be available on 40 college campuses this fall and to over 100 campuses by spring of next year.
- 7-Eleven has partnered with DoorDash to offer on-demand deliveryin five metropolitan markets. The service includes the delivery of fresh foods and beverages.
- Corporate Stirrings:Bob Evans, under pressure from a major investor, announced it will sell and lease back some of its restaurants. The company is targeting proceeds of $165 to $175 million from the arrangement. Dine Equity has announced that Applebee’s will relocate their executive office from Kansas City to Glendale, California. This will combine Applebee’s and IHOP in one location. About 10 percent to 20 percent of Applebee’s Kansas City staff will be asked to move to the new office while guest services and accounting will stay in Kansas. Sodexo has notified the state of Florida that they will lay off 228 workers effective November 1 due to the loss of their contract for HCA East at JFK Medical Center in Atlantis.
- Growth Chains:Blaze Fast Fire’d Pizza plans to open 85 to 135 restaurants annually for the next 7 years. Tropical Smoothie will open 40 locations in the Dallas area over the next 10 years. Firehouse Subs is expanding in to Canada with plans for 90 units in Ontario. Zaxby’s will open 4 restaurants in Louisiana. Spin! Neapolitan Pizza has 7 units in 4 states and 3 more under construction. Fogo De Chao, the Brazilian steak house chain, will open 5 restaurants in the US with an eventual goal of 100 locations.
- Comparable Store Sales Reports: Bob Evans’s down 0.3 percent.
For details and same-store sales of other chains, please click here for the Green Sheet.