Published on Tuesday, 17 January 2017
Written by Jerry Stiegler
Retail sales were up last month but restaurants saw a sales decline. Hiring foodservice employees is getting tougher. McDonald’s plans to franchise its China operation and now wants to do the same for Japan. Applebee’s and IHOP are planning major overseas expansion.
The U.S. Census December advance retail sales data showed a 0.6 percent increase over November and a 4.1 percent increase over December 2015. Excluding motor vehicles and automotive parts, retail sales increased 0.2 percent from November and 3.4 percent from December 2015. Obviously vehicle sales were responsible in large part for strong retail sales last month. Total 2016 retail sales were up 3.3 percent.
Restaurant and drinking place sales continued their roller coaster pattern with December revenue falling 0.8 percent. Restaurant and bar sales for December were up 2.8 percent over December last year and up 6.0 percent for all of 2016.
The advance sales numbers are based on a small sample and are subject to revision. For example, the 0.8 percent increase in restaurant and drinking place sales were changed to +1.2 percent in last month’s report.
Further limitations are that the study includes restaurants and bars only. Not surveyed are hotels, resorts, clubs, retailers, employee feeding, healthcare, education, and military feeding.
Finally, the Census Bureau adjusts some, but not all, of the sales data for seasonal variations, holidays, and weekends but makes no adjustment for menu price changes.
Economic News This Week
- Consumers increased their borrowing significantly in November. The Federal Reserve reported that consumer credit increased 7.9 percent for the month, lead by a hefty 13.5 percent jump in revolving credit. Revolving credit consists primarily of credit cards. Non-revolving credit — car loans, student loans, and other personal loans — rose 5.9 percent. The large increase in consumer borrowing would indicate consumers are confident about the future.
- Initial jobless claimstotaled 247,000, an increase of 10,000 for the week ending Jan. 7. The 4-week moving average was 256,500, a decline of 1,750. Once again, first-time jobless claims are significantly less than 300,000.
- The Producer Price Index for Final Demand rose 0.3 percent in December. The index for final demand goods was up 0.7 percent and the index for final demand less the volatile food and energy sectors increased 0.3 percent. The index for final demand services was up 0.1 percent. The index total for final demand in the last 12 months was up 1.6 percent. It appears that inflation may be increasing. The Federal Reserve set its target for inflation at 2.0 percent.
- Consumers spent more for Christmas in 2016,according to a survey by the International Council of Shopping Centers. Seasonal spending, which included dining at shopping centers, was $711. This was a 16 percent increase from 2015 and was up 4 percent from a survey of consumers spending intentions taken in October.
- Christmas retail sales rose 4.0 percent. This beat forecasts, according to the National Retail Federation, including its own.
- The Gallup Organization’s in December of +9. The index consists of two components similar to many of these types of surveys. Respondents are asked their feelings on current economic conditions and whether the economy is getting better or worse. Thus, in December, 9 percent more consumers felt positive about the economy than felt negative. The history of this research project is that more people were negative than positive since 2008 — with the exception of a short period in early 2015. The shift to a positive outlook may be a significant development.
- The University of Michigan’s Index of Consumer Sentiment was unchanged from December in the preliminary January survey. The December reading of 98.2 matched the January index of 98.1. The Current Economic Conditions Index rose slightly to 112.5 from 111.9 in December while the Index of Consumer Expectations fell slightly to 88.9 in January from 89.5 in December.
Foodservice News This Week
- Foodservice job market tightens. Operators continue to have a hard time finding employees and many executives see the signs in their restaurants — slower service, messy tables and floors, handprints on doors, etc. Some are quite up front about having to raise wages even though they will probably have to increase menu prices. Some restaurants offer paid vacations, paid days off and free meals to entice new staff members and hold on to old ones.
- McDonald’s announced a franchise deal for China.CITIC and CITIC Capital will own 52 percent of the new organization with U.S. buyout firm Carlyle Group owning 28 percent and McDonald’s owning 20 percent. Part of the deal calls for opening 1,500 units across the region over the next 5 years. McDonald’s will receive $2 billion for the agreement.
- McDonald’s will accept bids for up to 33 percent of its share in the company’s Japanese operation.The fast-food company now owns slightly less than 50 percent of the company. Bids are due this week.
- DineEquity targets the international market for expansion. Since 2014, the operator of Applebee’s and IHOP has opened 80 restaurants overseas and just inked 4 multi-unit development agreements. IHOP has a deal for 10 locations in Thailand by 2021. Another IHOP agreement calls for 20 locations in India by 2025. Applebee’s has signed an agreement for 6 units in Bahrain and Oman by 2023. Applebee’s also has an agreement for 5 restaurants in Panama by 2021.
- Starbucks cancels its Evening program,ending wine, beer, and small plates offerings. The Evenings program was available at more than 400 stores in the U.S. Instead, Starbucks will focus on developing its upscale Roasteries and Reserve stores. Some U.S. licensed operations, as well as some international locations, may continue the Evenings program.
- Panera Bread is expanding delivery service.The fast-casual chain offers delivery at 15 percent of its restaurants and wants to raise that to 35 percent to 40 percent by the end of this year.
- Corporate Stirrings: Freshii has announced its intention to go public in Canada. The plan is to offer 10.9 million shares at C$8.50 to C$10 per share, which would raise as much as C$109 million or $83 million in U.S. dollars. Latin-focused Pizza PatrÓn has been sold to the chain’s largest franchisee, Charles Loflin, who owned 33 of the company’s 93 units before the sale. In addition to the company itself and the one corporate store, he purchased 10 stores owned by Pizza PatrÓn’s founder and former owner, Antonio Swad. Terms of the sale were not disclosed. Garden Fresh Restaurant Corp. will sell its assets to a private equity firm. The company, which owns the Souplantation and Sweet Tomatoes chains, should emerge from Chapter 11 bankruptcy latter this year. Garden Fresh said the sale should have no effect on the day to day operation of the business.
- Growth Chains: Johnny Rockets will open 100 restaurants in Australia and New Zealand over the next several years. This year Johnny Rockets plans to open 60 restaurants in North and South America. The chain’s new look in the U.S., which includes a kitchen redesign, was featured in the September 2016 issue of FE&S. Yolk will open at least 30 restaurants in the next 5 years. Vegie Grill, currently with 28 locations, plans to double in size during the next 3 years. Checkers and Rally’s will open 26 locations in the Sacramento, Calif., area in the next 5 years. Church’s Chicken signed a 10 -unit deal with a Florida franchisee, with another 10-unit expansion expected in 2021. Love’s Travel Stops will open more than 50 locations this year, all of which will have one or more quick-serve restaurant, including IHOP Express, Dunkin’ Donuts, and Taco John’s units. Rapid Fired Pizza, headquartered in Kettering, Ohio, has 10 units open and another 12 in development.
- Comparable Store Sales Reports: Popeye’s Louisiana Kitchenup 3.0 percent and Red Robin down 4.5 percent.
For details and same-store sales of other chains, refer to the Green Sheet.