Not Enough Cooks, McDonald’s Faces Media Bias and Much More

Malcolm Knapp reports on September. Did the media do a hatchet job on McDonald’s? All-day breakfast may be working for Big Mac and the world’s largest restaurant chain may have begun a turnaround. A shortage of cooks is beginning to hurt restaurants. These stories and a whole lot more This Week In Foodservice.

Malcolm Knapp reported that comparable-store sales remained “modestly positive” in September for the 50-plus casual dining chains that participate in the Knapp-Track program. Mr. Knapp said comp sales rose 1.0 percent in September vs. 1.3 percent in September 2014. Comp-store guest counts on a year over year basis remain negative, being down 1.0 percent in September this year after dropping 1.5 percent in September last year.

Overall sales were up 2.9 percent with guest counts up 1.0 percent.

Sales volatility from week to week was lower than average while performance in geographic areas varied quite a bit. Mr. Knapp found what was unusual was a high variance between good and bad performing brands this year with the difference running over 20 percent.

September same-store sales declined 1.5 percent at high-end steakhouses but were up against a tough comparison with comps up 6.3 percent in September 2014. Mr. Knapp added that comps were running positive in October.

Finally, Mr. Knapp believes that his “allocation nation” thesis is still in effect, with consumer carefully selecting where they eat since they can’t afford to dine out as often as they would like.

Malcolm Knapp’s report is courtesy Bank of America Merrill Lynch.

Economic News This Week

  • Initial jobless claims rose by 3,000 to 259,000 in the week ending October 17. The less volatile 4-week moving average fell by 2,000 to 263,250. The last time the 4-week moving average for claims was at this level was 42 years ago.
  • The National Association of Home Builders reported that builder confidence rose 3 points in October to 64. Any number over 50 indicates more builders view conditions as good rather than bad. This is the highest the Home Builders/Wells Fargo Housing Market Index has been in 10 years.
  • Privately owned housing starts were at a seasonally adjusted annual rate of 1,206,000 in September. This is 6.5 percent above housing starts in August and 17.5 percent above September 2014. Single-family housing starts were up 0.3 percent over August.
  • Privately owned housing building permits were at a seasonally adjusted annual rate of 1,103,000 in September, which was 5.0 percent below permits issued in August but up 4.7 percent from September 2014. Single-family permits were down 0.3 percent from August.
  • Existing home sales rose in September to a seasonally adjusted annual rate of 5.55 million. This is a 4.7 percent increase from August and an 8.8 percent increase from September 2014. Existing home sales have increased year-over-year for 12 straight months. The National Association of Realtors also reported that median existing home prices in September were up 6.1 percent over September of last year.
  • New home sales tumbled in September with the Census Bureau reporting that there were 468,000 new residential homes sold on a seasonally adjusted annual basis. This is a decline of 11.5 percent from August and the lowest rate in 10 months. The drop was due in part to an unusual low number of sales in the Northeast. Sales were up 2.0 percent over September 2014.
  • The leading economic indicators retreated in September by 0.2 percent after being flat in July and August. Weakness was seen across the stock market, the manufacturing segment and housing permits. Never the less, the Conference Board still looks for “moderate” economic expansion.
  • Gallup’s U.S. Economic Confidence Index remained flat for the week ending October 18, with a minus 13 reading. Since the first week in September the index has stayed in a narrow range between minus 12 and minus 14 showing more Americans feeling negative about the economy than positive.

Foodservice News This Week

  • Were reports about McDonald’s misleading? Scott Hume, publisher of Burger Business, goes further than that, calling the articles “shockingly biased.” Hume points out that the stories were based on a survey by Mark Kalinowski of Nomura, which covered just 29 McD’s franchisees who own 226 stores out of 14,000 units in the U.S. Hume has no problems with Kalinowski, who acknowledges the tiny sample size and reports all the comments, good and bad. The media that picked up the study not only didn’t mention the small sample but also ignored positive comments and focused just one the negative ones.
  • All-day breakfast is increasing foot traffic at McDonald’s. Foursquare, a social media company, reports that since McDonald’s rolled out their all-day breakfast program, foot traffic is up 9 percent. A spokesman for Foursquare noted that 9 percent more people at 14,000 locations is a lot of traffic.
  • McDonald’s finances show improvement in the third quarter. The hamburger giant’s comparable-store sales increased 4.0 percent driven by positive same-store sales in all the company’s operating areas. U.S. comp store sales were up 0.9 percent, the first increase in 2 years. Like many firms with extensive international operations, McDonald’s suffered as a result of the strong U.S. dollar. Revenue decreased by 5.0 percent but would have been up 7.0 percent in constant currencies. Operating income fell 2.0 percent but would have been up 10.0 percent in constant currencies. Steve Easterbrook, McDonald’s CEO called the third quarter “… an important step in the company’s global turn around.”
  • A shortage of chefs and cooks is hobbling restaurant growth, according to the NYT. There are several explanations including an expansion in the number of full-service restaurants. But major cause of the problem is that young people are reluctant to take entry-level positions with long hours, hard, dirty work and low pay. Many young chefs want to do a short stint in a first-class operation then open their own place. Restaurants deal with the shortage by lowering hiring standards, simplifying menus, offering standards like hamburgers and pizza, and in some cases serving disappointing food.
  • Merger and acquisition activity in the foodservice industry fell sharply in the first 9 months of the year compared to the same time period last year. The Food Institute reports there were 29 mergers and acquisitions thru September this year vs. 46 thru September 2014.
  • Is Chipotle Mexican Grill now a “mature” chain? A recent Wall Street Journal article makes a case that Chipotle is “settling into middle age…” as sales growth slows, finding workers is harder, and there are problems securing ingredients. Further, critics such as Center for Science in the Public Interest have attacked Chipotle for high-calorie and high-sodium foods. Competitors have are also following Chipotle’s lead in removing artificial ingredients while Taco Bell is opening new restaurants that will serve beverage alcohol and appetizers.
  • Domino’s launches fleet of delivery vehicles. The 100 new cars are highly modified versions of the Chevrolet Spark subcompacts that can hold up to 80 pizzas in the holding cabinet. The custom vehicles will be introduced in 25 markets including Boston, Detroit, New Orleans and San Diego.
  • Gigi’s Cupcakes has opened a corporate training center and test kitchen in Spring Hill, Tenn. Gigi’s is testing new breakfast items such as quiche, muffins and cinnamon rolls.
  • Growth Chains: Chipotle Mexican Grill plans on opening 220 to 235 new restaurants in 2016. The Pie Hole has signed an agreement for 3 new locations in Qatar. Jersey Mike’s Subs plans on doubling the number of their restaurants in the next 4 years. Checkers plans on opening 100 locations in the Houston area in the next decade. Dickey’s Barbecue has signed a development agreement for 6 restaurants in Pennsylvania. PizzaRev has signed an agreement with Southern Restaurant Holdings, the franchised operator of 8 Steak ‘n Shake restaurants, to open at least 16 PizzaRev locations in Tennessee and Northern Georgia.
  • Comparable-Store Sales Reports: Baskin Robins up 7.5 percent, BJ’s Restaurants up 2.3 percent, Brinker (Chili’s company-owned down 1.6 percent, Chili’s franchised up 0.8 percent and Maggiano’s down 1.7 percent), Cheesecake Factory up 2.2 percent, Chipotle Mexican Grill up 2.6 percent, Del Taco up 5.6 percent, Dunkin’ Donuts up 1.1 percent, and McDonald’s up 0.9 percent.

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

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