Published on Tuesday, 25 October 2016
Written by Jerry Stiegler
Stories worth a second look this week: How Americans really feel about cooking; menu prices continue to climb; research indicates a $15 an hour wage will hurt those it is supposed to help; Millennials are the biggest spenders when it comes to eating out; and McDonald’s surprises Wall Street.
More than 40 years ago, when I was an editor for Restaurants & Institutions, our editor told us the basics: everyone has to eat. The only question is whether you will cook yourself or pay someone else to cook? The fact remains that some people don’t want to cook. There are people who want to cook but don’t know how. Then there are those people who want to cook and know how to cook but don’t have time to cook.
According to a study of American’s cooking habits sponsored by Wolf Appliance Inc., which markets to both foodservice operators and consumers, nothing has changed much in 40 years. For example, 43 percent of those surveyed said they are too tired to cook, even when they have time.
One quarter said they would rather watch a cooking show than cook themselves, while one in six said they will order takeout food if it takes more than 30 minutes to cook. As for Millennials, those fascinating people who eat out a lot (more on Millennials in the Foodservice News This Week section below), 58 percent admit to occasionally eating snacks or junk food for dinner. Less than half say that they know how to dice, saute, broil, mince, sear, or braise food. And perhaps most interesting of all, 21 percent of Millennials have never boiled an egg.
The “restaurant recession” may or may not be real but there is a core audience for food away from home that doesn’t seem to be changing their eating habits soon.
Economic News This Week
- The Consumer Price Index rose 0.3 percent in September on a seasonally adjusted basis. The Bureau of Labor Statistics also reported that the All Items Index is up 1.5 percent in the last 12 months, indicating inflation is well under control. The “core index” — all items less food and energy prices — increased 0.1 percent in September and is up 2.2 percent in the last 12 months (for September food prices, please see the Foodservice News This Week section below).
- Initial jobless claims rose 13,000 to 260,000 for the week ending Oct. 15. To put the increase in perspective, the previous week’s claims were at a 40-year low. The less volatile 4-week moving average increased 2,250 to 251,750.
- The Conference Board Leading Economic Index increased 0.2 percent in September to 124.4 (2010 = 100). A board spokesman said the results “suggest” that the U.S. economy should continue to expand at a moderate pace through early 2017.
- Existing home sales were up sharply in September, rising 3.2 percent to a seasonally adjusted annual rate of 5.47 million. The National Association of Realtors said this reversed a two-month slump in existing home sales and was propelled in large part by sales to first time home buyers.
- The Empire State Manufacturing Survey from the Federal Reserve Bank of New York reported a decline in manufacturing activity for the third consecutive month with the index falling 5 points to minus 6.8. (Any number under zero indicates declining activity.) The New Orders Index rose slightly by 1.9 points but stayed in negative territory at minus 5.6. The Shipments Index rose by 8.8 points but also stayed negative at minus 0.6. Unfilled Orders improved by 1.2 points to minus 10.4. The Employment Index climbed 10 points but it, too, stayed negative at minus 4.7.
- The Federal Reserve Bank of Philadelphia’s Manufacturing Business Outlook Survey showed business continued to improve in October but at a slower pace than September. The Index fell from 12.8 in September to 9.7 in October but any number above zero indicates manufacturing activity growth. The New Orders Index shot up to 16.3 from 1.4 in September. The Current Shipments Index rose 24 points to 15.3 but the Unfilled Orders Index remained in negative territory. The Employment Index remained negative at minus 4.
- Industrial production inched up 0.1 percent in September, following a 0.5 percent decline in August. In the third quarter, industrial production rose 1.8 percent at an annual rate, its first increase since the third quarter of 2015. The U.S. Federal Reserve also reported that Capacity Utilization for the industrial sector rose 0.1 percent in September. It now stands at 75.4 percent, which is 4.6 percentage points under its long run (1972-2015) average.
- Privately owned housing starts fell in September with the number of starts down 9.0 percent from August and down 11.9 percent from September 2015. However, the number of housing starts were heavily influenced by a decline in multifamily dwellings as single family housing starts were up 8.1 percent over August. Permits issued for privately owned housing units rose 6.3 percent over August and were up 8.5 percent over August 2015. Permits for single family homes were up 0.4 percent over August.
Foodservice News This Week
- The September Consumer Price Index showed food prices were flat with the food-at-home piece down 0.1% and the food-away-from-home segment up 0.2 percent. Both are on a seasonally adjusted basis. In the last 12 months, food-at-home prices are down 2.2 percent while food-away-from-home was up 2.4 percent. This is a continuing situation that has resulted in some commentators blaming soft restaurant sales on the spread between food prices at home and away.
- A study by a staffing agency predicts negative effects of a $15 an hour minimum wage. Express Employment Professionals said the research found a 10 percent increase in the minimum wage would reduce teen employment rates by 1.0 percent to 2.0 percent would likely speed up automation and increase prices. The study also found that public opinion is divided. Most people back raising the minimum wage but not to $15 an hour.
- Millennials are big spenders on eating out and a new study looks for them to spend more as their incomes grow. The USDA study found that Millennials spend 44 percent of their food dollars ($2,921 annually) eating out. Baby Boomers spent 40 percent of their food dollars — $2,629 eating out annually but projections show that as they retire many will spend less. One reason for their heavy spending is Millennials use delivery systems and pay delivery charges and may have to meet minimums to get the service.
- McDonald’s third quarter results beat estimates. The hamburger giant reported that corporate same-store sales rose 3.5 percent with U.S. comps up 1.3 percent. The company said that U.S. performance was driven to all day breakfast, the McPick 2 promotion and the introduction of the preservative free McNuggets. Total revenue dropped by 3.0 percent but the company explained that this was primarily due to refranchising. McDonalds stock, which had been trending lower, staged a rally upon the release of the quarterly financial data, with stock gaining 3.0 percent. For comparison, in their last reported quarter (ending Sept. 30) Burger King’s comparable store sales in the U.S. and Canada were down 0.8 percent and Wendy’s comparable store sales for their quarter ending July 3 were up 0.4 percent in North America.
- A new chain, Coffee & Bagels, combines Caribou Coffee and Einstein Brothers Bagels. The operation is owned by JAB Holding, a European Investment firm that, in addition to Caribou Coffee and the Einstein Noah Restaurant Group, also owns Stumptown Coffee Roasters, Keurig Green Mountain, Krispy Kreme Doughnuts Inc., Jacobs Douwe Egberts and Peets Coffee & Tea. The company plans to have 35 Coffee & Bagel stores open by the end of this year and is hoping to create synergy between all the brands.
- Texas Roadhouse now has two Jaggers restaurants. The concept features burgers and chicken sandwiches and both units are located in Indiana. A company spokesman said there are not any current plans for expansion as the chain focuses on their new full service concept, Bubba’s 33.
- The c-store industry collectively spent over $6 billion remodeling in 2015 at an average cost per store of $409,582.
- Corporate Stirrings: Fiesta Restaurant Group has announced they are putting the company up for sale. Reports are that the action is getting some interest from private equity firms. Earlier this year the chain said they going to sell the Taco Cabana operation, but last month announced they were putting the sale on hold.
- Growth Chains: Dog Haus, which currently has 21 units, has signed a development agreement with American Development Partners to open over 300 restaurants in 12 states over the next 7 years. Slim Chickens has an agreement with franchisees to open 15 locations in North Texas over the next 8 years. Teriyaki Madness has signed an agreement for 20 units in Phoenix, the largest deal in the company’s history. Starbucks plans on doubling the number of stores in China to 5,000 by 2021. By the end of this year BurgerFi will have opened 24 new locations in the U.S. and 4 overseas. Carl’s Jr. has opened their first restaurant in Cambodia, the first of 15 planned for that country.
- Comparable Store Sales Reports: B.J’s Restaurants down 3.4 percent, Baskin Robbins down 0.9 percent, Burger King down 0.5 percent, Del Taco up 6.7 percent, Domino’s Pizza (U.S. system up 13.0 percent, company-owned up 13.8 percent and franchised up 12.8 percent), Dunkin’ Donuts up 2.0 percent, McDonald’s up 1.3 percent, Red Robin down 3.6 percent, and Tim Horton’s up 4.5 percent.
For details and same-store sales of other chains, see the Green Sheet.