An uptick in sales and traffic drove an increase in the National Restaurant Association’s Restaurant Performance Index (RPI). The index increased 1.1 percent in March to 101.8, the highest level since February 2016. (Any number over 100 indicates growth.)
The Current Situation Index jumped 2.7 percent to 101.4. For the first time since September 2016, more operators reported higher same-store sales than reported lower same-store sales (57 percent vs. 30 percent). While not as dramatic a difference, more operators reported traffic had increased in March than reported traffic had declined (41 percent vs. 38 percent).
The other component of the RPI, the Expectations Index, fell 0.3 percent but stayed in the expansion range at 102.2. Looking at future sales, 41 percent expect higher sales in the next 6 months, which is up from 38 percent who thought the same thing in February. Only 8 percent of operators surveyed expect their sales to decline. Even better, only 27 percent of operators expect economic conditions to improve in the next 6 months, the lowest level since October 2016.
It appears operators are continuing to invest in their businesses. In the past 3 months, 63 percent of the operators reported making capital expenditures for equipment, expansion or remodeling. This was the strongest level in 4 months. And, 58 percent plan to make a capital expenditure for equipment, expansion or remodeling in the next 6 months.
Economic News This Week
- New jobs bounced back In April. After being revised down to just 79,000 in March, new jobs shot up by 211,000 in April. Meanwhile, unemployment, which is measured in a different study, fell to 4.4 percent. Probably the only negative in the Bureau of Labor Statistics report was that average hourly earnings have risen just 2.5 percent over the year. (For April hiring in the foodservice industry, please see the Foodservice News This Week section below.)
- The ADP National Employment Report for April said private sector employment increased by 177,000. The payroll processing company also reported that the leisure/hospitality sector added 35,000 jobs. Small businesses (fewer than 50 employees) grew by 61,000 employees, medium businesses (50-499 employees) increased by 78,000 jobs and large businesses (+500 employees) added 38,000 new employees.
- Initial jobless claims fell by 19,000 to 238,000 for the week ending April 29. The 4-week moving average increased by 750 to 243,000.
- Personal income rose 0.2 percent in March according to the Bureau of Economic Analysis. But the extra dollars in consumers’ pockets did not translate into more spending as personal consumption expenditures were flat for the month.
- The Institute for Supply Management’s Production Manufacturing Index retreated in April. The PMI declined from March by 2.4 points to 54.8. (Any number greater than 50 means increasing activity.) April marks the 95th consecutive month of production growth. But the New Orders Index fell sharply, falling by 7.0 percentage points to 57.5. The Production Index inched up 1.0 percentage point to 58.6, while the Employment Index was off 6.9 percentage points to 52.0.
- The Institute for Supply Management’s Non-Manufacturing Index rose 2.3 percent in April, indicating business expansion at an increasing rate and marking the 88th consecutive month of growth. The April Index was 57.5, up from 55.2 in March. (Any number over 50 shows growth.) New Orders rose 4.3 percentage points to 63.2. The Employment Index slid 0.2 percentage points to 51.4. The Institute also reported that 16 service industries grew in April, including Accommodations & Foodservice.
- Car and light truck sales continued to slide in April. Ford, Fiat Chrysler, GM, Toyota, Honda, and Nissan all saw sales decline from April 2016. Automotive News put April sales at 1,172,000, down from 1,238,000 in April 2016. One automotive expert stated that the industry is geared up for annual sales of $17 million but it appears to him that it will be $15 million this year. Last month, foodservice consultant Malcolm Knapp observed that a fall in auto sales could leave consumers with more money to eat out.
- Consumers increased their borrowing by 5.2 percent in March on a seasonally adjusted annual rate. Revolving credit (primarily credit cards) rose 2.4 percent on a seasonally adjusted annual rate while non-revolving credit (auto loans, boat loans, student loans, etc.) grew 6.2 percent on a seasonally adjusted annual rate.
- March construction spending fell 0.2 percent from February but was 3.6 percent higher than March 2016. Residential construction spending increased 1.2 percent in March from February.
Foodservice News This Week
- YUM signed an agreement with Pizza Hut franchisees to upgrade technology and equipment. The investment is placed at $130 million. Pizza Hut, YUM’s weakest brand, has been struggling for many years. Some financial analysts would like to see YUM spin off the brand.
- Foodservice operators hired 26,200 new employees in April. The Bureau of Labor Statistics noted that the foodservice sector hired 260,000 employees during the past year. In April foodservice accounted for more than 13 percent of all the new jobs in the private sector.
- Prepared food and beverages now account for 22 percent of c-store sales, up from 13 percent in 2010. In an attempt to offset lost revenue from declining tobacco sales, c-stores have turned to burgers, pizza and other foodservice items. Convenience stores tend to offer lower-priced products. Feeling they can best compete with fast-food restaurants. The Sheetz chain has been putting drive-thru windows in half their new stores to better compete with fast-feeders.
- Restaurant chains have another year to post calorie counts. Four days before operators with 20 or more units were supposed to post the calories for each of their menu items, the Food and Drug Administration postponed the implementation of the program until May 7, 2018. Backers of listing calories were quick to criticize the FDA’s action while some chains, especially pizza operators, applauded the action. The rule is part the Affordable Care Act. But some chains, including Krispy Kreme, have said the reprieve came too late and will go ahead with posting calories now.
- Buffalo Wild Wings will test a small format store. The chain will convert two shuttered PizzaRev locations in Minneapolis suburbs.
- Boston’s Restaurant & Sports Bar announced a rebranding that will include a new company logo and a new tagline. The chain will reposition as “America’s Sports Restaurant” and place a stronger emphasis on its core products, such as pizza, pasta, burgers and wings. One goal is to better align with their Canadian counterpart, Boston Pizza, in order to establish a North American brand.
- The Service workers’ union called for an investigation into McDonald’s rent policy. The Service Employees International Union (SEIU) has asked California and Illinois to investigate how McD’s sets the rent for its franchisees, claiming the burger chain doesn’t accurately or specifically disclose its rent formula. Further, the union states that McDonald’s charges more than other, similar chains, which makes it hard for franchisees to raise employees’ wages. The SEIU has been targeting McDonald’s and other restaurant chains for 5 years to get them to pay a $15 an hour wage as well as to improve working conditions.
- New York pizza operator comes up with a $38 pie. The NY Times reports that Sofia Pizza Shoppe in the upscale Sutton Place area of NYC offers the “DoughDici,” a two-inch-tall puffy-crust with a crisp edge and red sauce, fresh mozzarella and grated cheeses. The pie requires an online ticket order and is only available a few nights a week, and then only one per seating.
- Corporate stirrings: Bob Evans Restaurants announced the completion of its acquisition by Golden Gate Capital. Famous Dave’s will accelerate its refranchising of 33 corporately owned restaurants over the next 12 to 24 months. The Ignite Restaurant Group may be considering filing for bankruptcy. It had previously reported that the owner of Joe’s Crab Shack and Brick House Tavern had engaged Piper Jaffrey to explore selling the brands, either together or separately.
- Growth Chains: Ruby Tuesday has signed a development agreement for 5 restaurants in Qatar over the next 5 years. Black Bear Diner plans to open 21 restaurants this year. Boston’s Restaurant & Sports Bar has signed development agreements for a total of 20 restaurants in California, Nevada and the Dallas/Ft. Worth area. New Orleans Saints’ star quarterback Drew Brees and partners plan on opening 73 Walk-On’s Bistreaux & Bar locations in Baton Rouge, La.; Columbus, Ohio; Indianapolis; and Orlando, Fla. Baskin Robbins expects to add 10 stores this year. Dunkin’ Donuts plans to add approximately 385 restaurants in the U.S. this year. Arby’s will open 10 restaurants in Canada in the next 3 years.
- Comparable Store Sales Reports: Applebee’s down 7.9 percent, Baskin Robbins down 2.4 percent, Bojangles’ down 1.7 percent, Bravo Brio (total down 2.3 percent, Bravo down 2.9 percent and Brio down 1.9 percent), Cheesecake Factory up 0.3 percent, Chuy’s down 0.7 percent, Del Taco up 4.2 percent, Denny’s (system down 1.1 percent, company-owned down 1.6 percent and franchised down 1.1 percent), Diversified Restaurant Holdings down 0.3 percent, Dunkin’ Donuts flat, El Pollo Loco (system down 0.3 percent, company-owned down 0.4 percent, and franchised down 0.2 percent), Habit Burger up 0.9 percent, IHOP down 1.7 percent, J. Alexander’s Holdings (J. Alexander’s/Redlands up 3.4 percent and Stony River Steakhouse down 0.5 percent), Papa John’s (North America up 2.0 percent, company-owned up 3.0 percent, and franchised up 1.7 percent), Ruth’s Chris Steakhouse up 0.7 percent, Shake Shack down 2.5 percent, Wingstop down 1.1 percent, YUM! Brands (KFC up 2.0 percent, Pizza Hut down 7.0 percent, and Taco Bell up 8.0 percent) and YUM! China (KFC up 1.0 percent and Pizza Hut up 2.0 percent).