In less than 4 months, there have been 4 major acquisitions in the restaurant field. In addition to the JAB Holdings Inc.’s offer for Panera Bread Company, Bob Evans was purchased by private equity firm Golden Gate Capital, Restaurant Brands International bought Popeye’s Louisiana Kitchen, and Darden purchased Cheddar’s Scratch Kitchen.
One financial analyst attributes the wave of acquisitions to “a search for revenue growth and operational leverage.” A MarketWatch story contends “problems in the sector” are driving these transactions. These problems include declining sales and flat traffic as a result of consumers’ reluctance to eat out. In addition, food prices have fallen, making eating at home less expensive while restaurants try to cope with increasing wage costs, higher charges for medical insurance, and rising rent.
It is also interesting to note, though, that Panera Bread has bucked the trend and reported same-store sales grew 5.4 percent in the company’s last quarter.
Economic News This Week
- Expansion continues, according to the Institute for Supply Management’s Report on Manufacturing Index. The March Index read 57.2, virtually identical to February’s 57.7 reading. Any number that exceeds 50 indicates expanding activity. The New Orders Index dropped 0.6 points for a final reading of 64.5. The Production Index fell 5.3 points for a total of 57.6. The Employment Index increased 4.7 points for a final reading of 58.9. Of the 18 manufacturing segments ISM surveys, 17 reported expansion and the 18th was flat.
- The Institute for Supply Management’s Report on Non-Manufacturing Index showed expansion in March. The overall index was 55.2, down 2.4 points from February. (Any number more than 50 indicates expanding activity.) The New Order Index totaled 61.2, down 2.3 points from February. The Employment Index totaled 55.2, down 3.6 points from February. Of the 17 non-manufacturing industries surveyed by ISM, 15 had growth in March including Accommodations & Foodservices.
- indicating that 2017 will not be another banner year for the auto industry. As has been the case for months, light trucks and SUVs saw strong sales while car sales declined.
- Construction spending increased 0.8 percent in February from January and was up 3.0 percent compared to February 2016.
- The ADP National Employment Report shows the U.S. private sector added 263,000 jobs in March. This represents the highest number of new jobs in a single month since July 2016, according to ADP. The payroll processing company said 45 percent of the new jobs were at companies with fewer than 50 employees and that the leisure/hospitality industry hired 55,000 new people.
- Initial jobless claims fell by 25,000 for a final reading of 234,000 for the week ending April 1. The 4-week moving average fell by 4,500 to a level of 250,000. Often considered an “early warning indicator” for a softening economy, initial jobless claims continue to run at very low levels.
- The number of new jobs was disappointing to some economists. The Bureau of Labor Statistics reported only 98,000 new jobs were added in March. This was half of the number of new hires forecast and much less than the +200,000 new jobs in both February and March. (The Bureau did revise the number of new jobs down by a total of 38,000 for the first 2 months.) Economists were also disappointed by the small increase in average hourly earnings. On the positive side, unemployment totaled 4.5 percent, a decline of 0.2 percent, and the number of unemployed persons dropped by 326,000. One theory for the poor job results was that bad weather in early March pulled down new hires.
- Consumer credit increased 4.8 percent in February according to the U.S. Federal Reserve. The Fed reported that revolving credit — mostly credit card borrowing — rose 3.5 percent after declining 3.2 percent in January. Non-revolving credit — car loans, student loans, etc. — increased 5.3 percent in January.
Foodservice News This Week
- Foodservice hiring remained strong in March. The Bureau of Labor Statistics reported foodservice operators added 21,700 new employees last month. With just 89,000 new hires in the private sector, it means that the foodservice industry was responsible for almost 1 out 4 new jobs in the U.S. economy. It also raises a question about the continuing drumbeat about a restaurant recession. If there is indeed a recession, why does the industry keep hiring?
- Changes in consumer purchasing methods will require operators to adjust. Andy Puzder, former CEO of CKE Restaurants, said that mobile ordering and different paying options will require foodservice operators to adapt or fail. It will be necessary for employees to have vocational and technical training and more on-the-job training. And, companies need to invest in entry-level positions. Puzder, probably referring to minimum wage increases, said he hopes that young people are not priced out of the market.
- Ruby Tuesday bets on revamped salad bars to turnaround falling sales. The struggling casual restaurant chain believes expanding its Garden Bar from 36 items to 58 and adding healthier choices like kale will attract more women and families. The company wants to position themselves as a “salad concept with a full menu on the side.”
- One in four adults purchased a meal kit in 2016 according to a survey by the Harris Poll. The top reasons for purchasing a meal kit include saving time on meal planning and the short time for prep and cooking this option offers. The survey also found of those who purchased a meal kit last year, 70 percent will continue to do so.
- Chinese tourists are big business. Visitors from China already spend more per person than citizens from any other country and are projected to be the largest demographic traveling, surpassing the people from the United Kingdom and Japan. China’s growing middle class is the reason for the expanding numbers and the U.S. hospitality industry is being urged to develop plans to make the Chinese more comfortable, including offering more Chinese food and menus in Chinese.
- Child friendly it is not. After several complaints from customers about unruly children, Caruso’s Italian Restaurant in Mooresville, N.C., banned customers less than five years old. The restaurant owner reports that guest counts are up 50 to 80 a day since the new policy went into effect.
- Corporate Stirrings: Texas Roadhouse will pay $12 million to settle a lawsuit filed by the Equal Employment Opportunity Commission that charged the steak chain with age discrimination in hiring. The EEOC stated that older applicants were routinely rejected for front-of-the-house jobs. The settlement will be paid out to applicants more than 40 years old who were turned away from 2007 to 2014. Ignite Restaurant Group is in the process of selling the company. Piper Jaffrey has been hired to assist in the sale. The chain said the company could be sold as one entity or by selling their two operations, Joe’s Crab Shack and Brick House Tavern and Tap, separately. The sale of Panera Bread Company has attracted the attention of the Levi & Korsinky LLP law firm, which is investigating the sale. In these instances, such an investigation often represents an inference that the purchase price was too low.
- Growth Chains: Fire House Subs’ Franchisee, Caribbean Restaurants Inc., will open “several hundred” restaurants. Dunkin’ Donuts will open 12 stores in North Carolina. Eltana, a four-unit bagel chain in Seattle, was contacted by a Japanese firm who will open an operation in Tokyo. Bruster’s Real Ice Cream will open three locations in Los Angeles. Cousin’s Subs will open 10 locations in Chicago plus 1 in Rockford, Ill., and 1 in Madison, Wis. Checker’s will open 20 units in the Washington, D.C., area.
- Comparable Store Sales Reports: Bad Daddy Hamburgers up 3.2 percent, Good Times Burgers up 0.1 percent, and Panera Bread Company up 5.4 percent.
For details and same-store sales of other chains, Please Click Here for the Green Sheet.