Stories worth a second look: Boston Globe columnist takes a look at effects of minimum wage; the foodservice industry added over 9,000 employees in October; Buffalo Wild Wings has major expansion plans for its taco chain; YUM’s China operation is officially a separate company; and the NFL’s declining TV ratings are getting the blame for soft sales at some chains. Plus, we have the latest comp store sales for over a dozen chains.
The Boston Globe presented an interesting perspective on minimum wage laws. The column focused on two ballot initiatives in the state of Washington in this year’s election. The first puts a statewide tax of $15 a ton on carbon dioxide to reduce greenhouse emissions. The second raises the minimum wage to $13.50, effective the first of the year. A University of Michigan professor, while acknowledging that some people will vote for both, points out that if voters believe the tax on carbon dioxide will reduce emissions, to be consistent, they would recognize that increasing wages will result in fewer jobs.
This is not just theory. In 2014 the city of Seattle raised the minimum wage to $15 an hour. A post-increase study by researchers from the University of Washington found that employment rates declined for low wage workers. Another example was in our nation’s capital where D.C. restaurants reduced employment by 1,400 jobs after a minimum wage increase.
Backers of minimum wage increases talk in terms of reducing poverty, social justice and morality but the sad fact is the true minimum wage is zero, which is what low skilled workers will earn when wages are lifted artificially. Click to read the full article.
Economic News This Week
- The ADP National Employment Report for October projected 147,000 jobs added in the private sector on a seasonally adjusted basis. The payroll processing company estimated there was a decrease of 18,000 jobs in the goods-producing sector while the service-providing sector added 165,000 jobs. ADP also reported that small employers (less than 50 employees) added 34,000 jobs, mid-sized firms (50-499 employees) added 48,000 new hires and large employers added 64,000 jobs.
- Initial jobless claims rose 7,000 to 265,000 for the week ending Oct. 29. The 4-week moving average increased 4,750 to 257,750. This is the 87th straight week with claims running under 300,000.
- The U.S. Department of Labor reported a moderately good October, with employment rising 161,000 and the unemployment rate falling to 4.9 percent. Other positives include a 10 cent increase in average hourly earnings following an 8 cents an hour increase in September. The labor department also revised upwards the number of new jobs up for both August and September by a total of 44,000. On the negative side, the number of jobs added were well below forecast, the number of both longterm unemployed and the number of workers with part-time jobs wishing full-time employment remained high. See the Foodservice News This Week section for details on foodservice employment.
- October auto and light truck sales were mixed with some manufacturers experiencing double-digit sales declines even with a heavy use of incentives. The other side of the issue was that overall sales were at a high level historically and a large percentage of the vehicles sold were light trucks and SUVs, which earn high profits for their makers.
- Personal income rose 0.3 percent in September over August according to the Bureau of Economic Analysis. The Bureau also reported that personal spending rose 0.5 percent in September.
- Private construction spending fell slightly in September according to the U.S. Census Bureau. Spending fell by 0.2 percent from August. However, private residential construction spending was up 0.5 percent for the month versus August.
- The Institute for Supply Management’s Production Manufacturing Index changed just slightly in October with ISM reporting the index edged up 0.4 percent to 51.9 percent from September. (Any number over 50 indicating growth.) The New Orders Index decreased by 3 percentage points to 52.1. The Production Index rose by 1.8 percentage points to 54.6. The Employment Index rose by 3.2 percentage points into expansion territory at 52.9. Of 18 industries included in the survey, 10 reported growing in October.
- The Institute for Supply Management’s Non-Manufacturing Index retreated in October but stayed well within the expansion area at 54.8, marking the 81st consecutive month of increasing non-manufacturing activity. (Any number above 50 indicates expanding activity.) The index fell 2.3 percentage points from 57.1 in September. The New Orders Index fell 2.3 percentage points to 57.7 from 60 percent in September. The Employment Index decreased 4.1 points to 53.1. Of the 18 non-manufacturing industries monitored by ISM, 13 reported growing in October —this included the Accommodations & Food Services sector.
- Labor productivity increased 3.1 percent annual rate in the third quarter after falling in the previous 3 quarters. The Bureau of Labor Statistics also reported that unit labor costs increased 0.3 percent in the third quarter, with a 3.4 percent increase in hourly compensation and a 3.1 percent increase in productivity.
- New orders for manufactured goods increased 0.3 percent in September, shipments increased 0.8 percent while unfilled orders fell 0.4 percent according to the Census Bureau’s full report. New orders for manufactured durable goods — those goods that last 3 years or more — fell 0.3 percent but shipments increased 0.8 percent. Unfilled orders for durable goods fell 0.4 percent.
Foodservice News This Week
- The foodservice industry added 9,900 new jobs in October. While not a bad showing, the industry had been averaging well over 30,000 new hires a month so far this year.
- Buffalo Wild Wings will expand its R Taco chain to at least 10 new markets in the next 6 months including Indianapolis, Cincinnati, Cleveland, Louisville, Lexington, Nashville, Oklahoma City, Tulsa, St. Louis, and Kansas City. This will almost double the fast-casual chain’s current 13 locations.
- Its official: YUM is now a separate company from its China operation. YUM announced they are separate from YUM China Holdings Inc. The latter will now trade under its own name on the New York Stock Exchange.
- National Football League TV ratings are down and pizza and wing chains are blaming their lower sales on that decline. Chains like Buffalo Wild Wings attribute 10 percent of their traffic to NFL watchers on game day and the NFL plays 4 days a week. As for the reason for falling TV ratings for the NFL games, one explanation is the distraction of this year’s election. League officials, TV networks, advertisers and pizza and wing restaurants are hoping viewership will return to normal after the voting is over.
- Is there a restaurant recession? MarketWatch thinks so. Noting “downbeat” earnings recently from chain restaurants, the author of the story also blamed rising costs of rent, medicine and education along with falling consumer confidence and lower food prices making meals at home cheaper for weak restaurant traffic.
- Canadian shopping malls are upgrading food offerings in an attempt to diversify their offerings and attract and hold more customers. In the past few years the malls have increased their space dedicated to food from 7.0 percent to 8.5 percent.
- Corporate Stirrings: Chipotle is under fire by two smaller investors, Amalgamated Bank and CtW Investment Group, who want to replace founder and CEO Steve Ells as chairman. Pershing Square Capital Management, which owns almost 10 percent of the chain’s stock, making it the second largest investor behind Fidelity, has not spoken much publicly about their plans. Noodles & Co., reacting to weak sales, is considering closing underperforming stores or selling them to franchisees. The chain is actively adjusting its menu as well.
- Growth Chains: Taco Bell will expand to 9,000 units in the U.S. by 2022, which should increase the company’s employment by 100,000. YUM China plans to open 600 locations a year with a goal of having 20,000 restaurants in 20 to 30 years. Starbucks had announced one of their goals for 2017 is to open 2,100 restaurants. Wingstop has signed an agreement with their Mexican franchisee to open 30 stores in Panama and Columbia in the next 5 years. First Watch has signed a development agreement for 12 restaurants in North and South Carolina in the next 5 years. Dunkin’ Donuts has signed an agreement for 4 restaurants in Clarksville, Tenn. Domino’s plans on adding a minimum of 4 restaurants in Dayton, Ohio.
- Comparable Store Sales Reports: Applebee’s down 5.2 percent, Arcos Dorados up 15.6 percent, Bojangles up 0.8 percent, Bravo Brio Restaurant Group (total down 5.3 percent, Bravo down 8.0 percent and Brio down 3.7 percent), Chuy’s up 0.3 percent, El Pollo Loco (system up 1.6 percent, company owned up 1.4 percent and franchised up 1.8 percent), Habit Burger up 0.2 percent, IHOP down 0.1 percent, J.Alexander’s Holdings (J.Alexander’s/Redland’s up 1.4 percent and Stony River Steakhouse up 1.8 percent), Jamba Inc. (system down 1.1 percent, company owned down 0.8 percent and franchised down 1.1 percent), Papa John’s (North America up 5.5 percent, company owned up 6.3 percent and franchised up 5.1 percent), Papa Murphy’s (domestic down 5.8 percent, company owned down 7.7 percent and franchised down 5.6 percent), Potbelly Sandwich up 0.6 percent, Starbucks up 4.0 percent, Texas Roadhouse (company owned up 3.4 percent and franchised up 3.3 percent), and Wingstop up 4.3 percent.
For details and same-store sales for other chains refer to Green Sheet.