Published on Tuesday, 13 December 2016
Written by Jerry Stiegler
Foodservice executive picked for Trump’s cabinet. Foodservice traffic goes negative in the third quarter. Chipotle will try and restore good service as move to recover. McDonald’s will reintroduce their McCafe concept next year. These stories and a whole lot more this week in foodservice.
President-Elect Donald Trump chose CKE Restaurants Inc. CEO Andy Puzder to serve as secretary of labor. An economic adviser and fundraiser for the president-elect, Puzder is known to be quite outspoken and frequently contributes op-ed pieces to the Wall Street Journal. He is somewhat controversial in the foodservice industry for offering high calorie menu items at Carl’s Jr. and Hardees as well as featuring scantily clad women in the chains’ commercials.
There is little doubt that Puzder will draw fire from labor unions and Democrats in the U.S. Senate. Critics of his appointment refer to Puzder as anti-worker. The position of Labor Secretary is usually a low profile one, but the Obama administration issued numerous rulings and executive orders that upset employers. These include changes in who is eligible for overtime pay as well as a new definition that makes companies responsible for the actions of their franchisees. Another rule being challenged in the courts is one that ends the attorney-client privilege when it comes to unionization activities.
Puzder will also have to deal with Congress and the federal minimum wage sooner or later as well.
The Wall Street Journal offered strong support for Puzder in a lead editorial. Other sources believe that he should be confirmed by the Senate, after some squawking and maneuvering from the minority party.
Economic News This Week
- Initial-jobless claims totaled 258,000, a decline of 10,000 for the week ending Dec. 3. The 4-week moving average totaled 252,500, an increase of 1,000. This is the 92nd consecutive week with claims at less than 300,000. The last time this has happened was in 1970.
- Labor productivity increased 3.1 percent in the third quarter of this year. The Bureau of Labor Statistics said this was the first increase in business labor productivity after three consecutive quarters of decline. Unit labor costs increased 0.7 percent due to a 3.8 percent increase in hourly compensation and a 3.1 percent increase in productivity.
- New orders for manufactured durable goods grew 4.8 percent according to the U.S. Census Bureau’s advance report for October. Transportation equipment orders were up 12 percent. Without transportation equipment, new orders were up 1.0 percent. Shipments of manufactured durable goods increased 0.1 percent while unfilled orders rose 0.7 percent. Non-defense orders for capital goods – equipment used to manufacture other durable goods – increased 14.5 percent.
- Car and light truck sales increased in November after three straight months of sales declines. U.S. sale totaled 1.378 million, a record for the month and an increase of 3.6 percent from November 2015. The previous high was November 2001, when sales totaled 1.328 million. Automotive News attributes the increase to strong sales of light trucks and SUVs, heavy promotional spending by some manufacturers and early introduction of “Black Friday” deals.
- The University of Michigan Index of Consumer Sentiment surged in December. The preliminary index reading for the month was 98, up from 93.8 in November. This is just .1 percentage point less than the 2015 peak which was the highest level since the start of the 2004. The Current Economic Conditions Index rose to 112.1 from 107.3 in November while the Index of Consumer Expectations increased to 88.9 from November’s 85.2. A spokesman for the University said it appears the reason for the jump in confidence was due a large number consumers’ (but not all of those surveyed) positive reaction to expected changes in economic policies as a result of the recent election.
Foodservice News This Week
- Total foodservice visits declined 1.0 percent in third quarter. The NPD Group pointed out in the previous 6 years consumer visits grew at 1.0 percent a year. NPD attributes the decline to several reasons: healthcare costs and student loan debt limited customers’ available funds for dining out and the cost of the average restaurant meal has risen 21 percent in the last decade while declining grocery store prices have widened the gap between eating at home and eating out.
- Chipotle sees improved service as a key to its recovery. Steve Ells, Chipotle’s CEO, said new and changing food safety procedures “overwhelmed” managers and crew and as a result service and basic cleanliness like cleaning windows and bussing tables suffered. Chipotle normally changes about 8 operator procedures a year but the food safety breakdown caused the chain to implement 80 changes.
- McDonald’s will reintroduce its McCafe concept next year. Evidently the burger giant is not pleased with its share of the beverage business and will upgrade its products. This includes replacing current espresso machines in order to gain greater consistency and make a wider variety of drinks. The new equipment reportedly costs $12,000.
- Restaurants are becoming more vulnerable to cyber risks according to Deloitte consultants. Restaurants increasing use of innovative technology such as POS systems and new partnerships like third-party delivery systems all increase the possibility of security breaches. Deloitte strongly recommends restaurants invest in a cybersecurity program.
- Corporate Stirrings: Buffalo Wild Wings continues draw fire from Marcato Capital Management. The hedge fund, which owns more than 5 percent of BWW’s stock, is asking the chain’s franchisee to follow the dialogue with the top executives via a new public website. Mick McGurire, CEO of Marcato said the Buffalo Wild Wing franchisees would have better access to innovations and grow more if his ideas were applied. Wendy’s stock rose 4.6 percent when Trian Fund Management purchased 3.7 million shares. Trian, headed by activist investor Nelson Peltz, now owns more than 23 percent of Wendy’s outstanding shares. Jimmy John’s Sandwiches signed an agreement with the Illinois Attorney General to pay $100,000 to the state and notify all current and past employees that the non-compete clause in their contracts is unenforceable under Illinois law. The chain had settled a similar complaint with New York state earlier this year. Most non-compete clauses involve executives and top level technical people but Jimmy John’s had sandwich makers sign it.
- Growth Chains: Starbucks plans to open more than 12,000 new stores globally by 2021. Rapid Fired Pizza has 7 restaurants open and 13 more in development. Tropical Smoothie Café will open six locations in upper South Carolina. Papa John’s signed a development agreement for 28 restaurants in 3 major cities in Colombia over the next 8 years. Casey’s General Store will build or acquire 77 to 116 stores in 2017 as well as remodel 35 existing stores and complete the remodeling of 100 additional stores. Rally’s will open 20 locations in San Diego County over the next 5 years. Bojangles will have opened 13 locations in Tennessee by the end of the year. Dunkin’ Donuts will open 65 units in Dallas and another 8 in Houston.
- Comparable Store Sales Reports: Bob Evans down 1.8 percent, Casey’s General Stores up 5.1 percent, and Dave & Buster’s up 5.9 percent.
For details and same-store sales of other chains, see the Green Sheet.