Restaurant Index Retreats, Limited-Service Growth Continues and Much More

The U.S. economy barely grew in the first quarter. McDonald’s looks at smaller restaurants. Chipotle’s free burrito offer seems to be successfully luring customers. These stories and a whole lot more including over a dozen comparable store sales reports.

The National Restaurant Association’s Restaurant Performance Index stumbled in March, falling 100.7 from 102.1 in February. While the index remains in expansion mode, both the Current Situation and Expectation Indexes retreated during March. The National Restaurant Association theorizes that the Leap Day in February may have made the March comparison look worse than it actually was.

The Current Situation Index fell 2.6 percent in March to a barely positive level of 100.2. Same store sales data was mildly encouraging with 46 percent of operators reporting an increase from March 2015. Nineteen percent of the participating operators reported a decline in same store sales. Customer traffic, though, was another matter. Forty six percent of operators reported a decrease in customer traffic and only 26 percent reported seeing more customers during the month.

The Expectations Index fell 0.2 percent from February to 101.2. While more operators expect sales to increase in 6 months than those who thought their sales would be down, more operators had negative thoughts about the overall economy. Only 15 percent of those surveyed expected the economy to improve while 22 percent expected the economy to worsen.

In terms of purchasing and purchase intent, the report was a little brighter. Fifty nine percent of the operators said they had made a capital expenditure for expansion remodeling and/or new equipment in the last 3 months. This is very close to the 61 percent who answered the question affirmatively in February. As for future purchases, 59 percent of the operators plan to make a capital expenditure in the next 6 months, up 3 percent from February.

Given other reports on March – the Census Bureau’s retail sales for restaurants and bars and the Knapp-Track sales data for major casual restaurant chains, to name two – it certainly appears that March was a tough month for foodservice. Whether this is a one-time fluke or the beginning of a trend will have to be determined when April data becomes available.

Economic News This Week

  • The economy limped along in the first quarter. The Bureau of Economic Analysis estimates that Gross Domestic Product increased 0.5 percent during that time frame. Economists had not believed that GDP would be very strong in the first quarter due to a slow fourth quarter (GDP +1.4 percent) and history of slow starts in the last few years. But the consensus forecast was in the range of +0.7 percent and the economy did not even hit that low target.
  • Personal income rose 0.4 percent in March but personal spending increased just 0.1 percent as consumers elected to save their increased earnings or pay off old debt.
  • Initial jobless claims totaled 257,000, an increase of 9,000 for the week ending April 23. This was after the previous week’s claims had hit a 40-year low. The 4-week moving average for first time claims were 256,000, a decrease of 4,750.
  • Durable goods orders increased 0.8 percent in March according to the U.S. Census Bureau’s advance report. Durable goods shipments fell 0.5 percent while unfilled orders for durable goods fell 0.1 percent.
  • The April Chicago Production Business Barometer fell 3.2 points to stay just barely positive at 50.4. (Any number in excess of 50 indicates expansion while any number under 50 indicates contraction.) The index was pulled down by a fall in new orders and a “sharp drop” in order backlogs. However, production did show an increase for the month.
  • Home builders’ confidence remained steady in April with the National Association of Home Builders/Wells Fargo Housing Market Index reading 58 for the third consecutive month. Any reading of more than 50 means more single family home builders are positive about the market than negative.
  • Small business owners’ confidence hit a two-year low in March, falling 0.3 points for a reading of 92.6. The National Federation of Independent Business says this is the lowest the index has been since February 2014. The March reading is also far below the index’s 42-year average of 98. The Federation is extremely cautious about the findings, noting that the April study could indicate the possibility of an upcoming recession.
  • The Conference Board’s Consumer Confidence Index declined “moderately” in April, falling to 94.2 from 96.1 in March. The Present Situation Index increased to 116.4 up from 114.9 in March. The Expectations Index decreased from 83.6 in March to 79.3. A spokesperson for the Conference Board interpreted the data to mean that consumers don’t see any slowing in economic growth but they don’t see any pickup in momentum.
  • The University of Michigan Index of Consumer Sentiment’s April report had a final reading of 89, down two points from March. The Current Economic Conditions Index rose to 106.7 from 105.6 in March while the Index of Consumer Expectation weakened to 77.6 from 81.5 in March. A spokesman for the University stated the decline was “troublesome” but was “still far short of indicating an impending recession.”
  • The Gallup Organization’s Economic Confidence Index fell 4 points to its lowest level of the year at minus 16 for the week ending April 24. This index shows the difference between consumers who feel the economy is getting better vs. those who feel it is getting worse. For most of the history of this index (starting in 2008) more Americans have been negative about the economy than have been positive.

This Week In Foodservice

  • Sysco reported a 2.2 percent sales increase for its third fiscal quarter ending March 26. Case volume for their broad line business rose 3.6 percent while net earnings rose 10 percent and earnings per share grew 15 percent.
  • Some restaurant chains are rethinking the full-time vs. part-time employee model. For decades foodservice and retailers operated using part-time employees. The theory was that it made scheduling easer, plus it reduced costs because most part-timers didn’t have healthcare, paid vacations and other benefits. And, of course, some employees, like students, retirees, and mothers, didn’t want to work full time. But according to a recent article in the Wall Street Journal, some chains are rethinking this business model. The new theory is that full-time workers are more committed and engaged and provide better customer service. Plus, customers like seeing the same face day after day and have a more satisfying experience. Buffalo Wings & Rings saw sales increase by 6 percent per hour when using full-time employees. And while full-timers make scheduling more difficult, they also have less absenteeism and have less turnover. The Sheetz c-store chain reports that less than a quarter of full-time employees leave every year while their turnover rate for part timers exceeds 80 percent. The company calculates they saved $925,000 last year in recruiting and training costs by hiring more full-time workers.
  • Technomic reports limited service restaurant chains generated more growth in 2015 vs. full service chains. In fact, according to Technomic’s new Top 500 Report, the top 10 chains are now all limited serve operations, thanks to Panera Bread’s move up to tenth spot. In terms of unit expansion it is not even close, with limited serve units increasing by 2.3 percent while full serve chains increased their number locations by just 0.8 percent. Within the limited service segment, fast casual remains the fastest growing area with sales up 11.5 percent and unit growth up 9.6 percent.
  • McDonald’s is testing a smaller design that has a double drive-thru and a walk up window but no indoor seating. The new unit is obviously less expensive and can fit in spaces where a traditional McDonald’s operation could not. The new concept is being tested in Georgia, New Jersey, Texas and Washington State.
  • Chipotle’s free burrito coupon is bringing customers back. A consumer survey by Cowen & Cowen found that those who received the free burrito coupon visited the restaurant 3.8 times in a 30-day period but customers who did not get a coupon visited just 1.4 times.
  • The NPD Group finds fast feeders’ combo meals are driving sales. Consumers purchased 6.0 percent of lunch and dinner meals with some sort of combo deal in the year ending in February 2015 but NPD said that combo purchases rose to 8.0 percent in the year ending February 2016. NPD believes the key to the success of the newer deals is that they offer patrons the ability to customize the meal with menu items of their choice.
  • Corporate Stirrings: Bob Evans will close 27 underperforming restaurants. Twenty one of the restaurants are company owned and the remaining six are leased buildings. The company expects to generate $20 million from the sale of the properties and incur charges of $6.5 million to $6.0 million relating to the closing. There has been a report that Landry’s owner Tillman Fertitta has joined with investment banker Jeffries Group to form a special purpose acquisition company to purchase companies in the hospitality, gaming, or restaurant industries. Panera Bread plans to convert some Paradise Bakery & Café units to Panera Bread operations while some other Paradise locations outside malls will be closed. Panera took full control of Paradise in 2009.
  • Growth Chains: Dunkin’ Donuts expects to open 430 to 460 restaurants this year. Dickey’s Barbecue Pit has signed agreements with a franchisee for six restaurants in Southern California and with another franchisee for three restaurants in Central Ohio. First Watch will open four locations in Alabama this summer. Teriyaki Madness plans to open 18 restaurants this year. Cracker Barrel will open three restaurants in the Portland, Ore. area. Captain D’s has signed franchise development agreements for at least six new restaurants this year. Smoothie King plans to open five units in the Des Moines area in the next five years.
  • Comparable Store Sales Reports: Arby’s up 5.8 percent, Baskin Robbins up 5.0 percent, Bloomin’ Brands (All brands down 1.5 percent, Outback down 1.3 percent, Carrabba’s down 2.0 percent, Bonefish Grill down 2.7 percent, & Flemming’s up 1.3 percent.) Buffalo Wild Wings (Company owned down 1.7 percent & Franchised down 2.4 percent), Burger King up 4.4 percent, Cheesecake Factory up 1.7 percent, Chipotle down 29.7 percent, Del Frisco (Del Frisco Grille down 2.8 percent, Double Eagle down 0.1 percent, & Sullivan’s down 1.8 percent), Domino’s (System up 6.4 percent, Company owned up 4.0 percent, & Franchised up 6.6 percent), Dunkin’ Donuts up 2.0 percent, McDonald’s up 5.4 percent, Panera Bread Co. (System up 4.7 percent, Company owned up 6.2 percent & Franchised up 3.3 percent), Ruth’s Chris Steakhouse up 3.1 percent, and Tim Horton’s up 5.8 percent.

For details and same-store sales of other chains, Please Click Here for the Green Sheet.

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