Cornell Study Supports Wage Increases, NPD Group Talks Traffic and More

The National Restaurant Association reports the industry continues to grow. The NPD Group says restaurant traffic has now recovered from the recession. Cornell University thinks an increasing minimum wage is good for foodservice. Mergers and acquisitions in the restaurant industry were down sharply last year compared to 2014. These stories and a whole lot more This Week in Foodservice.

The National Restaurant Association’s Restaurant Performance Index stood at 101.3 in November, a decline of 0.7 percent from October. The National Restaurant Association attributes the decline to weaker sales in November. Despite the modest decline, the industry remained in expansion mode for the 33rd consecutive month.

The Current Situation Index fell 1.5 percent. Just 44 percent of those operators surveyed reported their same-store sales increased over November 2014 while a relatively high 33 percent reported their same-store sales declined for the month. This is the first time in almost two years that less than half of foodservice operators said their same-store sales were up.

Traffic results were similar to October’s with 40 percent of those surveyed saying traffic was up from November of last year and 39 percent saying traffic was down. The Expectations Index was 101.7 for the month vs. 101.6 in October.

Data was mixed on purchasing. A reasonably strong 61 percent of operators reported they had made a capital expenditure for new equipment, expansion and/or remodeling in the past 3 months. However, this was significantly lower than the 76 percent who reported an investment in October. As for the future, 63 percent of operators plan on making a capital investment in their businesses in the next 6 months, which is up from 59 percent in October.

Overall, it appears that the research shows modestly positive performance, but it also seems that the industry’s results are drifting lower since late summer.

Economic News This Week

  • Gross domestic product for the third quarter retreated slightly to 2.0 percent from 2.1 percent in the Commerce Department’s third estimate. The second quarter estimate remained at 3.9 percent.
  • First-time jobless claims rose to 287,000, an increase of 20,000 for the week ending December 28. The less volatile 4-week moving average was 277,000, an increase of 4,500. The Department of Labor said there were no special factors effecting claims for the week, but there are always some questions raised by the seasonal layoffs as the Christmas season winds down.
  • Personal income rose 3.0 percent in November while personal spending also rose 3.0 percent for the month. The savings rate was 5.5 percent, near a 3-year high.
  • New orders for durable goods were flat in November vs. October, according to the Department of Commerce’s Advance Estimate. Shipments rose 0.9 percent while unfilled orders rose 0.2 percent. New orders for capital goods – those goods used to manufacture other goods – fell 6.3 percent.
  • Sales of existing homes fell 10.5 percent in November compared to October for a seasonally adjusted rate of 4.76 million. The National Association of Realtors also reported that November sales were down 3.8 percent from November 2014, the first year over year decrease in 2015.
  • Sales of new single-family homes in November were 490,000 on a seasonally adjusted annual basis, which was a 4.3 percent increase over October and a 9.1 percent increase from November last year.
  • The University of Michigan Consumer Sentiment Index rose to 92.6 in the final reading for December. This is virtually identical with the average index for the year of 92.9. The Current Economic Conditions Index jumped to 108.1 from 104.3 in November while the Index of Consumer Expectations was 82.7 roughly the same as the 82.9 index in November.
  • The Conference Board’s Consumer Confidence Index improved in December and stands at 96.5. The Index had fallen “moderately” in November to 92.6. The Present Situation Index was 115.3 in December, up from 110.9 in November while the Expectations Index rose to 83.9 from 80.4 in November.

Foodservice News This Week

  • The Great Recession is finally over at least in terms of restaurant visitors. The NPD Group reports total traffic volume at restaurants will be up 1.0 percent to a total 61 Billion visits for 2015, marking a recovery from the recession. Dollar sales will be up 3.0 percent from this time last year. NPD attributes factors in increasing sales to be strong breakfast sales, good performance by the quick serve restaurant segment and menu innovations including bacon, BBQ and steak.
  • A Cornell Study concludes restaurants should support reasonable wage increases. The Cornell professors believe support for minimum wage increases will result in happier and more productive employees who are less likely to quit. The bottom line was wage increases do not have negative effects on either profits or employment. The caveat is that the increases must be modest and/or phased in slowly.
  • Restaurant merger and acquisition activity fell off sharply in 2015 according to the Food Institute. There were 61 mergers and acquisitions in 2014 but only 36 mergers and/or acquisitions in 2015.
  • A Reuters’ survey found Chipotle customers are split on eating at the fast-casual chain as a result of recent food safety problems. Twenty-three percent of those surveyed are eating less often at Chipotle, 3 percent were eating more often and 62 percent had not changed their dining patterns. One food safety expert commented that Chipotle’s communications campaign would not be effective unless the chain tells customers exactly what steps they are taking to prevent future problems.
  • McDonald’s is testing a new concept in Hong Kong. The design features an open kitchen, salad bar, a subdued color scheme and mood lighting. The restaurant will offer table service after 6:00 p.m.
  • Gordon Foodservice is expanding its Plant City, Fla., distribution center. Gordon will add 160,000 square feet to the facility and will be hiring 100 new employees.
  • Custom tableware is a hot trend with operators according to a story in the Washington Post. Actually, foodservice operators have recognized for decades that tableware is an important part of the dining experience.
  • Corporate Stirrings: McDonald’s is rumored to be considering selling part of its stake in McDonald’s Holdings Japan. While one of the largest chains in Japan, McDonald’s has been losing money as a result of several controversies. If McDonald’s proceeds with the sale, it could generate as much as $825 million. Bagger Dave’s closed eight “underperforming” units. Bagger Dave’s is owned by Diversified Restaurant Holdings, the largest franchisee of Buffalo Wild Wings. Famous Dave’s sold its seven Chicago area restaurants to Windy City Restaurants, which own six Famous Dave’s restaurants in Ohio and Michigan. Famous Dave’s has struggled financially and is operating under a restricted credit agreement.
  • Growth Chains: Sonic Drive Ins announced the expansion of 2 existing franchise agreements plus 2 new franchise agreements will result in 33 new drive-ins in California. Louisville-based Wild Eggs plans on opening 5 restaurants in Nashville.
  • Comparable Store Sales Reports: Ark Restaurants up 7.4 percent.

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

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