This Week In Foodservice: The U.S. Restaurant Industry Focuses on Growing and Expanding

As a number of publicly traded restaurant chains announce their quarterly earnings. GE Capital Franchise Finance shared a very optimistic outlook about this segment of the foodservice industry.

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GE Capital Franchise Finance released a very bullish report on the restaurant market at its Restaurant Leadership Conference. GE Capital, a major player in restaurant financing for decades, looks back on 2012 as a good year and expects continued sales advances this year.

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The top 100 restaurant chain sales hit $210 billion last year and now represent 51.1 percent of all restaurant sales, according to GEFF. The top 100 sales grew 4.7 percent year over year while unit sales increased by 1.8 percent. Full-service restaurant sales grew by 3.1 percent while fast food restaurant sales increased 5.6 percent.

GEFF's CEO summed up his view of the restaurant industry this way "Restaurants typically have relatively limited profit margins, so operators are always trying to adapt to changing consumer tastes while balancing other costs. Ultimately these are successful entrepreneurs who are trying to grow their businesses by enhancing their endangered brand equity and pleasing their customers. When they are able to reinvest, they can make capital expenditures, for example, investing in new technologies or making equipment purchases and eventually open new locations and hiring more employees. It's the American dream in action."

Economic News This Week:

  • Gross domestic product rose at an annual rate of 2.5 percent in the Department of Commerce's initial estimate for the first quarter of 2013. This is far better than the 0.4 percent recorded for the 4th quarter of last year and marks the 15th straight quarter of increases. On the other hand the 2.5 percent increase was considerably below the 3 percent to 3.5 percent growth projected by a lot of forecasters. The primary driver was consumer spending, which increased 3.2 percent. Some economists saw the economy as "pacing itself" and others saw declining gasoline prices and rising home equity as positive factors. Others pointed out that after-tax income has been declining and consumers have been cutting back on their savings. Thus, increased spending has been at the expense of savings and seen as unsustainable. Some economists are expecting the 2nd quarter this year to be sluggish with GDP in up in the 1.5 percent range.
  • Personal spending inched up by 0.2 percent in March, the smallest increase in 3 months. Eating out was one area where spending increased while consumers spent less on durable goods and gasoline, the latter because of falling prices at the pump.
  • Personal income grew by 0.2 percent in March, a severe drop from the 1.1 percent increase the Department of Commerce reported in February.
  • First-time jobless claims fell to 339,000, a sharp decline of 16,000 for the week ending April 19. This the second-lowest number of claims this year. The more consistent 4-week average of claims dropped to 357,000, a decline of 4,500.
  • The housing market news was mixed this past week with March existing home sales falling 0.6 percent compared to February. This translates into an annualized rate of 4.92 million sales of existing homes. Some housing experts believe that the low inventory of homes for sale hurts the market. Existing home sales were up 10.3 percent compared to March 2012. New home sales increased 1.5 percent in March to an annualized 417,000. This is 18.5 percent more than new home sales in March 2012. One economist believes that strength in the housing market will offset other weaknesses in the economy this year.
  • Durable goods orders fell an unexpected 5.7 percent in March according to the Department of Commerce. Leading the drop was a 48 percent swing in commercial aircraft sales. Auto and auto parts orders rose 0.2 percent but this was the smallest increase in this segment this year. Even excluding transportation, durable goods orders were still down 1.4 percent. The closely watched "core" business equipment orders increased 0.2 percent but this was after a 4.8 percent decline in February orders.
  • The "flash" or preliminary Purchasing Manufacturer's Index fell to 52.0 in April, its lowest reading in 6 months and its sharpest decline since January 2010. In March the PMI hit 54.6. These results raised concerns that manufacturing is losing momentum. The Euro Zone Composite PMI was unchanged at 46.5, indicating declining manufacturing activity since it is being below 50.
  • The Reuters/University of Michigan Consumer Sentiment Index final report for April was 76.4, significantly higher than the preliminary April index of 72.3 but below the March finding of 78.6. From a historical perspective the index is about 10 percent below the average reading since the start in 1978.
  • The Gallup Organization's U.S. Economic Confidence Index rose slightly to minus14 last week. While this is one of the best scores in the history of the Index, most Americans still have a negative outlook about the economy. Gallup also found Americans' view of their own financial situation has improved along with their opinion of whether things were getting better or worse. Still, less than half of those responding said their situation was good or excellent (45 percent) and the same was true for those who said it was getting better (47 percent).

Foodservice News This Week:

  • Redefining value was a topic for Advertising Age this week and one example used was Wendy's "Right Price, Right Size" menu, which includes items ranging in price from 99 cents to $1.99. Wendy's advertising makes it clear that the items offer the same quality of ingredients as the rest of their menu and wants customers "to like what they spend and love what you eat." The obvious comparison is with McDonald's Dollar Menu which essentially just pushes price.
  • 7-Eleven has once again stated the c-store's chain commitment to foodservice. The c-store chain has spent about $1 billion in the past 5 years to make its stores more "foodservice friendly" by adding new coffee bars, cold vaults, and hot food equipment as well as "more snackable, on the go items." CSP.net quotes 7-Eleven's CEO as saying that consumer behavior changed since 2008 and that the c-store giant wants to be nimble enough to change with them.
  • Tesco, the U.K.-based retailer, has made it official: it will exit the U.S. market. The chain's U.S. Fresh & Easy markets, which offered a wide array of upscale prepared foods will be closed or sold. The company blamed bad timing, stating that when they started the Fresh & Easy operation in 2007, California, Arizona and Nevada were the fastest growing in the country. Two years later, due in large part to the housing bust, they were suffering.
  • Does expanding restaurant hours work? Yes and no according to a Wall Street Journal article. Some operators have found that increasing their hours of operation simply doesn't pay off and others complain that they can't get late shift workers. A Pita Pit USA franchisee found that staying open to 3:00 a.m. in college towns did drive sales but didn't work in other areas. A Checkers/Rally's Drive In franchisee said it took a few months for his sales late night hours to build to worthwhile levels.
  • Growth Chains: Hooters is making major menu changes and redesigning all of the wing chain's 420 restaurants. No time frame or investment amount has been announced. Burger King has expanded its delivery program to Chicago, Los Angeles and San Francisco. Baskin Robbins has signed a master licensing agreement that will develop 50 stores in the Philippines in the next 5 years. Chuck E. Cheese has signed franchise agreements for opening 39 international stores in the next 6 years. Smashburger will open restaurants at airport locations in Dallas, Philadelphia, and San Jose, Puerto Rico. Checkers will add 22 locations to their current 19 locations in New York City. Quesada Burritos & Tacos will add a minimum of 90 restaurants in the next 5 years.
  • Comparable Store Sales Reports: Baskin Robbins (down 4.4 percent), BJ's Brewhouse (up 0.4 percent), Bravo Brio Restaurants (Bravo! down 1.6 percent and Brio down 3.2 percent), Brinker (Chili's down 1.1 percent and Maggiano's up 0.4 percent), Buffalo Wild Wings (company owned up 1.4 percent and franchised up 2.2 percent), Burger King (down 3.0 percent), Cheesecake Factory (up 1.6 percent), CKE (consolidated up 2.6 percent, Carl's Jr. up 2.4 percent and Hardee's up 2.8 percent), Dunkin Donuts (up 1.7 percent), Grand Lux (down 0.9 percent), Kona Grill (down 2.6 percent), McAlister Deli (up 5.0 percent), Panera Bread (up 3.3 percent), Starbucks (up 6.0 percent), Texas Roadhouse (company-owned up 3.5 percent and franchised up 4.5 percent), and YUM! (Blended up 2.0 percent, KFC down 1.0 percent, Pizza Hut down 1.0 percent and Taco Bell up 6.0 percent).

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

Foodservice Supplier Financial Data has been updated with just released quarterly figures for Libbey, Inc.

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