Jerry Stiegler covers the Restaurant Performance Index as well as a host of other economic indicators to provide a snapshot of the economic outlook for foodservice operators. 

The NRA has reported that their Restaurant Performance Index dropped 0.8 percent to 99.9 in February. The main culprit was the Current Situation Index, which declined 1.4 to 98.3 from January's reading. Traffic fell as did same store sales. This was the first decline in same store sales in 21 months. Given February data from other sources, such as KnappTrack, the fall in the Current Situation Index is not a surprise.

The Expectations component of the RPI also retreated but by a modest 0.2 percent and it remained above the critical 100 level at 101.4.

In February operators continued to invest in the future with 48 percent stating they had spent money on expansion, remodeling and/or equipment in the previous 3 months. However, this percentage was down from 52 percent in January.

Operators will be planning on investing in the future as well, with 57 percent of those surveyed in February saying they will have expenditures for expansion, remodeling and/or equipment in the next 6 months.

Economic News This Week:

  • Gross domestic product for the fourth quarter has been revised up to +0.4 percent from the Commerce Department's second estimate of +0.1 percent. While an obvious improvement, GDP is still about the lowest that it has been in two years. The good news is that businesses invested more in offices and other commercial real estate than originally stated. The bad news was that consumer spending was revised down from +2.1 percent to +1.8 percent.
  • Initial jobless claims rose 16,000 to 357,000 for the week ending March 22. The more consistent 4-week average of all claims is now 343,000. Despite some statistical improvements lately, Mortimer Zuckerman of US News & World Report describes the unemployment picture as "dire." As he pointed out earlier this year in an op-ed piece in the Wall Street Journal, when the people who have given up looking for work, the involuntary part-time workers, and those "marginally attached" to the work force are counted, unemployment is really 14 percent to 15 percent. Mr. Zuckerman also claims that most of the new jobs being created are low wage, part-time positions and that some of the new jobs are really second or third jobs for people already employed. He further states that the number of long-term unemployed increased in February by 89,000 to 4.8 million. Finally, he says that we will need 300,000 new hires every month for 7 years to make up for all the jobs lost in the recession.
  • There was mixed news on the housing market this past week. New home sales as measured by the Department of Commerce fell 4.6 percent to an annual rate of 411,000 in February. This is still up 12.3 percent over February 2012. New home sales were 306,000 in 2011 and 367,000 in 2012. However, in the peak year of 2005, new home sales totaled 1.28 million. RealtyTrac reported that the inventory of foreclosed homes on the market increased by 9 percent in February. Some housing experts have expressed concern about the "shadow inventory" referring to foreclosed homes that mortgage lenders have yet to place on the market. On a positive note, S&P/Case-Schiller reported that home prices rose 8.1 percent in January vs. January 2012. And, prices increased 0.1 percent in January over December, which is a period when home prices frequently fall due to slow sales activity. But, prices still remain a third lower than their peak and are about where they were 10 years ago.
  • Durable goods orders rose 5.7 percent in February after falling 4.9 percent in January. Segments were uneven with aircraft way up. Computers and primary metals were up as well but closely watched core capital goods fell 2.7 percent after increasing 6.7 percent in January.
  • The Chicago Federal Reserve's Production Manufacturing Index fell back to 52.4 after reaching 56.5 In February. New orders, production, inventory and back orders all dropped but any number over 50 indicates that manufacturing is expanding.
  • Personal income and personal spending both rose in February, according to the Department of Commerce. Personal income was up an unexpected 1.1 percent after declining by a revised 3.7 percent in January. "Real" personal income rose 0.7 percent after adjusting for inflation. Personal spending rose 0.7 percent in February and January spending was adjusted up to 0.4 percent from the original report of 0.2 percent. But increased spending on gasoline and food accounted for most of the spending while durable goods sales were flat.
  • The status of consumer sentiment depends a lot on which survey you choose to believe. The Reuters/University of Michigan Consumer Index made a jump to 78.6 for the final March report after the preliminary number for the month was just 71.8. Meanwhile, the Conference Board Consumer Confidence Index fell from 69.6 in February to 59.7 in March. A Conference Board spokesman blamed the government spending sequester for the sharp decline in confidence. Gallup's US Economic Confidence Index also retreated to minus 16. In addition, Gallup found that only 21 percent of Americans are satisfied with the way things are going in the country. March results are not only significantly below the 25 percent and 27 percent in January and February this year but under the average of 26 percent for all of 2012.

Foodservice News This Week:

  • Obamacare may not have as great an impact on the foodservice industry as previously projected. A number of observers have been closely watching the industry because of the large number of uninsured employees. Now the Wall Street Journal reports that some major chains are reducing their cost estimates for the new healthcare law. Wendy's CFO is quoted as saying the company is cutting their projected annual cost increase by 80 percent from $25,000 per unit to $5,000. Wendy's executives now see increased health insurance costs as "manageable." Chipotle, Popeye's, and Jack in the Box have take roughly similar positions but McDonald's has stuck to their estimate of complying with the law will cost $10,000 to $30,000 per store. Those chains who have revised their expense estimates now believe that a significant number of employees will get insurance through Medicaid or a family member while others will choose to pay the government's mandated penalty.
  • Walgreen's, which had been making headlines by charging toward offering fresh prepared foods, now appears to be backing away from the concept. CSP Daily News carried an article indicating that two of the Walgreen's top executives who championed expanding foodservice in their stores have left the company. A company spokesperson was quoted as saying that the foodservice programs that received a lot of media coverage when they were offered in certain types of stores were never intended to be expanded to the entire chain.
  • McDonald's has a problem with Millennials. According to an internal company memo, the people between late teens and early 30's are still eating at McDonald's and other burger chains but doing so less often. The NPD Group reports that burger chains have experienced a 16 percent decline in visits from Millennials since 2007. According to the leaked memo this situation was the number one reason for McD's introduction of the McWrap, hoping that the product will appeal to Millennials.
  • A move by one mom and pop C-store in Redwood Falls, Minnesota, can't be called a trend but the P&K convenience store made the news when they took out their gas pumps and expanded their foodservice offerings. The owner says there is no profit in gasoline and Redwood Falls' population of 15,000 doesn't attract many restaurants.
  • Growth chains: Great Salads has succeeded in the tough Detroit market and now will be franchising with 8 to 12 units to open this year and 12 to 16 in 2014. The company's goal is for 220 restaurants in 8 years. Pie Five Pizza Company has signed a multiunit franchise agreement for 10 restaurants in Florida. Burger 21 has a multiunit development agreement for 7 restaurants in Florida. Smoothie King plans to open 70 franchised units and 30 company locations in the U.S. this year. Al's Italian Beef has an agreement to open 30 restaurants in California in the next 8 years. Huddle House will build 16 new restaurants this year and plans to open 20 more in 2014. Fast-casual breakfast and lunch chain Protein Bar will add 5 new locations this year to their current 8 restaurants.
  • Comparable store sales reports: Just one new report this week – Sonic Drive Ins (system was flat, company-owned up 1.9 percent, and franchised down 0.3 percent).

For details and comparable store sales for other chains, click here for the Green Sheet.