Restaurant industry performance took a big step in the right direction in May but consumer sentiment remains mixed.

The Restaurant Performance Index rose 0.9 percent in May to 101.8 for the third consecutive monthly gain and significantly into a range indicating foodservice growth. Both major components of the Index also rose. The Current Situation component increased an impressive 1.6 percent to 101.6 with both same-store sales and traffic up over May 2012.

The Expectations component inched up 0.2 percent to 102. This is the highest level in 12 months. One negative was an increase in operator pessimism about the overall economy with 15 percent of those surveyed expecting economic conditions to worsen in the next 6 months vs. 13 percent so indicating in the April report.

Operators reported they were increasing their investments in expansion, remodeling and/or equipment purchases with 52 percent saying they made a capital expenditure in the last 3 months, up from 47 percent in April. Future plans for capital investments remained strong as well, with 57 percent of operators saying they planned on increasing their spending in the next 6 months.

Economic News This Week:

  • Gross Domestic Product was revised down to +1.8 percent in the U.S. Department of Commerce's third estimate for the first quarter of this year. The Department of Commerce's second estimate was a mediocre +2.4 percent so this latest revision came as a nasty shock that Wall Street investors managed to shrug off. This last report revised consumer spending for the quarter down from +3.4 percent to +2.6 percent while business investment was lowered all the way to +0.4 percent from +2.2 percent. Most observers had already predicted second quarter GDP would show an increase of less than 2.0 percent and this latest data isn't going compell economists to be more bullish. The economy has been growing at around 2 percent in the last 15 quarters, marking the weakest recovery in 60 years.
  • First-time jobless claims fell to 346,000, a decline of 9,000, for the week ending June 15 while the 4-week average fell to 345,750, a decline of 2,750. Every week someone finds something positive in the claims numbers but it is hard to get excited when the number of layoffs have stayed in the same range for the last 6 months.
  • Pending home sales as calculated by the National Association of Realtors rose 6.7 percent to an index of 112.3 for May. This puts pending home sales at their highest level since December 2006.
  • New home sales in May rose 2.1 percent to an annualized rate of 467,000, the highest since mid-2008. The U.S. Department of Commerce also revised the April sales to 466,000 from 454,000.
  • Durable goods orders increased 3.6 percent in May, led by commercial aircraft sales. More encouraging, sales of computers, communications equipment, machinery and metals increased 1 percent, which indicates businesses are investing. Total durable goods orders were up 7.7 percent compared to May 2012.
  • The Chicago Federal Reserve's Production Manufacturing Index unexpectedly fell to 51.6 in June indicating sluggish growth in the Chicago region. The Index was 58.7 in May.
  • May personal spending rose 0.3 percent, which included increasing consumer spending at foodservice operations.
  • May personal income increased 0.5 percent after being flat in April. When adjusted for inflation personal income is up 1.1 percent in the last 12 months.
  • Consumer confidence indices were moving in opposite directions in June with the Conference Board's Consumer Confidence Index moving up to 81.4 from 74.3 in May. The June report marks its highest point since January 2008. On the other hand, the Reuter/University of Michigan Consumer Index retreated slightly from the May reading of 84.5 to 84.1 in June.

Foodservice News This Week:

  • The most successful initial public offering, so far, this year goes to Noodles and Co. The fast-casual chain was offered at $18 per share and then was bid up to $36.75 its first day, a 104 percent increase. The stock price of the second most successful opening day so far this year was an increase of 78 percent. The Noodles & Co. launch was very close to the April 2012 success of software company Splunk which increased 109 percent on its first day.
  • The Corporate States of America purports to show the lead brand for every state in the union. The selections are nothing official, just the opinion of a writer and artist named Steve Lovelace. Some of the picks are pretty well accepted such as Anheuser Busch for Missouri and Hershey for Pennsylvania, while others are much more controversial. As far as foodservice, Ohio's top corporation was Wendy's, Oklahoma's was Sonic, the state of Washington's was Starbucks, and Florida's was Hooters. (I think maybe the Floridians might say anybody but that one.) The big "but" was Illinois which was represented with Caterpillar. Come on, "Cat" is a great brand but the place with the golden arches has got to be most people's choice.
  • Choosing a restaurant is "increasingly complex" according to a recent Technomic study. Seventy percent of consumers say price is important when choosing where to eat but there is a balance with quality as well. It is very interesting to note that diners told Technomic the major reason they wish to save money is so that they can afford to eat out more often.
  • Bakery café restaurants are the fastest growing segment in Technomic's Top 150 Fast-Casual list. The 26 bakery café concepts on the list saw sales increase $6.1 billion in 2012. Mexican concepts were the second fastest growing segment, up $5.6 billion.
  • Casey's General Stores continues to focus on pizza. The C-store chain, which operates more than 1,700 stores in 14 states, has been expanding their pizza delivery concept and has 274 stores in the program. Now the chain has announced a test of a new concept called Casey's Pizza Express which will offer whole and slice pizza along with fountain drinks, bread sticks, chicken wings, and a self service yogurt bar.
  • Daily's Convenience Stores are introducing a fast-casual concept called Dash that will offer fresh, made to order menu items for breakfast, lunch and dinner. Daily's plans on having the new concept in 7 of their stores by the first quarter of 2014.
  • A New York City law that forbids restaurants to add surcharges to listed prices except for groups of eight or more is the basis of a lawsuit by a tennis pro against Olive Garden, Red Lobster, Ruby Tuesday, the Marriott Marquis Hotel, and Applebee's. The suit claims price fixing and trickery by having diners add a second tip when tips have already been added to the check. The New York Post article did not indicate if the suit's plaintiff had complained at the time the charges were incurred.
  • Growth Chains: Sonic has a redesigned prototype that requires lower building costs and less land which makes it practical for smaller towns. The chain has signed 13 development contracts for locations in Texas, Oklahoma, Tennessee and Iowa. BJ's Restaurants with 132 will open 17 restaurants this year and plans to eventually grow to more than 450 locations in the U.S. Penn Station East Coast Subs opened its fifth unit in the Charlotte, N.C. area and expects to have 28 operations there by 2016. Starbucks plans to open 100 outlets in Malaysia in the next 4 years. Zaxby's has signed a licensing agreement awarding exclusive rights for their stores in Utah to MJM 5G, operator of 30 Five Guys restaurants. Dickey's Barbeque has signed for its 500th franchise unit which now has the chain with 312 locations open and 200 more in development.

The latest Comparable Chain Store Sales Reports can be accessed by clicking here for the Green Sheet.