Limited Service Beats Full Service, College and University Foodservice Gains, and More

Are restaurant sales heading downward? Limited-service restaurant chains handily outperformed full-service chains last year. Study shows what eating at home really means. College/university foodservice operators saw a traffic boom in the past year. Frisch’s introduces a new restaurant design. These stories and a whole lot more This Week in Foodservice.

The National Restaurant Association’s Restaurant Performance Index totaled 100.6 in a May, a decline of 0.9 percent. This barely keeps the index in expansion territory and in effect may mean business was flat in May. The problem was with the Current Situation component of the RPI, which had both same-store sales and traffic down for the month. The other component of the RPI, the Expectations Index, was identical with the April reading of 101.

Based on data from The NPD Group, a Wall Street Journal article reports customer traffic to fast food restaurants was flat in the last quarter (March, April and May) after growing 2.0 percent in every quarter since September 2015. Further, visits to fast food restaurants declined 1.0 percent in May, for the first time since the NPD Group started tracking the segment since 2004. The article cites slowing job growth and rising gas prices as reasons for the decline.

In addition, restaurant and bar sales increased 0.8 percent, per the U.S. Census of Retail Trade’s latest advance estimate.

The Census Bureau study measures dollar sales as provided by the operators while The NPD Group queries consumers on how many times they ate out so both numbers can be “correct.” And the National Restaurant Association simply asks operators if sales were up over the same month a year ago so their numbers are not necessarily contradictory, either. As for the future, gas prices have dipped significantly in the past two weeks and the stock market has rebounded nicely, making it difficult to project what will happen in the coming months.

Economic News This Week

  • First quarter Gross Domestic Product rose 1.1 percent according to the Bureau of Economic Analysis’ third estimate. While an improvement from the government’s second estimate of 0.8 percent, this represents the slowest GDP growth level in a year and this is low on a historical basis. The Federal Reserve said indicators portend faster growth in the second quarter.
  • Personal expenditures increased 0.4 percent in May after a strong showing of increasing 1.1 percent in April. This may mean a stronger economy in the second quarter this year. Personal income rose 0.2 percent in May indicating consumers had to dip into their savings to finance their increased spending.
  • Initial jobless claims climbed to 268,000, an increase of 10,000 for the week ending June 25. The 4-week moving average remained constant at 266,750.
  • The Institute for Supply Management’s Manufacturing Report on Business posted a June reading of 53.2, up 1.9 percentage points. (Readings that exceed 50 indicate an expansion of manufacturing activity.) The New Orders Index hit 57, an increase of 1.3 percentage points. The Production Index totaled 54.7, up 2.1 percentage points. The Employment Index totaled 50.4, up 1.2 percent from May. Of the 18 manufacturing industries surveyed by the Institute, 13 reported growth in June.
  • The Chicago Purchasing Manager’s Index returned to expansion mode after two months of declining activity. The business barometer read 56.8 in June, an increase of 7.5 points. Any reading that exceeds 50 indicates increasing activity.
  • April Home Prices increased 5.4 percent in 20 U.S. Cities, according to the S&P/Case-Shiller 20 City Composite Index. Home prices hit an all-time high in seven cities while the S&P/Case-Shiller U.S. National Home Price Index was up 5.0 percent from April 2015.
  • May construction spending declined 0.8 percent from April but was up 2.8 percent from May 2015 according to the U.S. Census Bureau. In the first 5 months of this year construction spending was up 8.2 percent over the first 5 months of last year.
  • The Conference Board Consumer Confidence Index jumped to 98 in June from 92.4 in May. The Present Situation Index increased to 118.3 from 113.2 in May while the Expectations Index was 84.5 in June, up from 78.5 in May. However, the good performance of the index has to be considered cautiously in that the study was completed before England voted to leave the European Union.

Foodservice News This Week

  • Limited-service restaurant sales handily outperformed full-service restaurants, per data from Technomic’s Top 500 Chain Restaurant Report. The annual study shows total sales among the top 500 restaurant chains grew by 5.0 percent with limited-service chains growing 5.5 percent vs. 3.6 percent for full-service chains. Limited-service restaurants had a 2.3 percent increase in units while full-serve chains increased their units by just 0.8 percent.
  • College and university foodservice operations had 20 million more visits in the year ending in March 2016 year vs. the same time in 2015, according to the NPD Group. College and university operators have succeeded by giving students what they want to eat as opposed to treating them as a captive audience. Many colleges and universities welcome chain operations, particularly fast food concepts, on campus.
  • What does eating at home really mean? According to the Harris Poll, 78 percent of consumers cook from scratch, 45 percent heat up something frozen or refrigerated, and 37 percent serve other forms of convenience food such as pre-sliced meat, etc. And 23 percent of those surveyed pickup takeout food from restaurants on the way home, 22 percent pickup prepared food from a supermarket, and 15 percent have food delivered either from a restaurant or from meal delivery/ingredient services. Just 31 percent of consumers cook every day and only 57 percent said they enjoyed cooking. Further, 11 percent of the women responding said they never learned to cook (as did 23 percent of the men) and others say they don’t have time to cook and it is easier to “order something.”
  • Frisch’s introduced a new restaurant design. The new look creates a fresh and more open ambiance. The design features more tables and fewer booths, including a new, large community table and activities for children. The chain will ask diners their opinion of the changes before rolling out the new design.
  • Kellogg plans to open a cereal café in New York City. Kellogg cereals will be combined with ingredients like pistachios and sell for $6.50 to $7.50 a bowl. The cafe will also offer ice cream, juices and coffee.
  • McDonald’s may face problems with Britain’s exit from the European Union. The burger giant has significant exposure to any resulting “Brexit” problems given the number of stores in both the UK and Europe.
  • Corporate Stirrings: City Barbeque Inc. has received an investment from Freeman Spogli & Co., a private equity firm in Los Angeles. City Barbeque’s CEO said the capital will be used to grow the chain including entering new markets. Dublin, Ohio-based City Barbeque now has 28 restaurants in 4 states.  Arby’s repurchased all 19 of its restaurants in Knoxville from the franchisee, T.G.J. & Co. Wendy’s has agreed to sell 39 units in the Raleigh-Durham area to NPC International, Inc. NPC operates 144 Wendy’s units in 5 states as well as more than 1,200 Pizza Hut locations. Terms of the acquisition were not disclosed. Jimmy John’s is looking for private equity funds for a deal that the company hopes will value it at $2.3 billion. Private equity fund Weston Presidio is looking to sell its entire 30 percent share of the company while founder Jimmy John Liautaud is selling 10 percent to 15 percent. Jimmy John’s looked for an investment like this in 2014 and considered having an initial public offering last year.
  • Growth Chains: Wendy’s has a joint venture to open 2 restaurants in Brazil in order to get the brand known before seeking other Brazilian partners. Starbucks will open 800 stores in China, India and other Asian locations this year. Newk’s Eatery will open up to 12 restaurants in the Orlando area in the next 5 years. Papa Murphy’s seeks to double its locations in the Phoenix market and may have as many as 120 stores in the area by 2021. Old Chicago Pizza & Taproom will open 3 restaurants in Texas. The Sheetz c-store chain is opening new locations in North Carolina, Ohio, Pennsylvania and West Virginia.  
  • Comparable Store Sales Reports: Darden (system up 1.7 percent, Bahama Breeze up 5.4 percent, Capital Grille up 1.5 percent, Edie V’s up 0.9 percent, Longhorn up 1.1 percent, Olive Garden up 1.6 percent, Seasons 52 up 3.7 percent, and Yard House up 1.4 percent.)

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

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