Published on Tuesday, 06 August 2013
Written by Jerry Stiegler
Looking for some good news? Well the restaurant industry remained in expansion mode in June despite not growing as fast as the previous month. The bad news? The country's employment remains muddled, at best, which will continue to hinder foodservice growth.
The National Restaurant Association's Restaurant Performance Index retreated 0.5 to a level of 101.3 in June. Despite the step back, the industry remains in an expansion mode.
Even though the Current Situation Index declined by 0.9 in June, 52 percent of operators reported making capital expenditures, the same proportion who reported they had done so in May. Moreover, operators' future plans for capital expenditures remain positive, with 59 percent stating they plan to make investments for equipment, expansion and/or remodeling in the next 6 months, which is up from 57 percent in May.
Economic News This Week:
- Job reports disappoint. Payroll processing company ADP estimated the private sector created 200,000 new jobs in July. In contrast, the widely accepted U.S. Census Bureau report said the economy added 162,000 new jobs last month with 1,000 of those coming from the government. Some analysts pointed out that a lot of the new jobs are lower paying and/or part-time positions. While the unemployment rate declining to 7.4 percent in July from 7.6 percent appeared to be good news, it was somewhat dampened by the fact that this development was chiefly due to people dropping out of the labor market. Even a sharp decline in first-time applications for jobless claims of 19,000, which resulted in a level of 326,000, was questioned as meaningful due to seasonal layoffs in the auto industry and the education areas. And while new job creation may be strong enough to meet the needs of population growth, some observers believe the country needs a sustained run of 250,000 to 300,000 new jobs each month to bring down unemployment.
- Gross Domestic Product rose an unexpected 1.7 percent in the second quarter according to the U.S. Department of Commerce's advance estimate. Some forecaster had predicted an increase of less than 1 percent. This marks the third quarter in a row with GDP at less than 2 percent. The Department also revised its second quarter GDP level down to 1.1 percent.
- Personal spending rose a reasonably strong 0.5 percent but personal income rose just 0.3 percent, which translates into a decline in income after factoring in an inflation rate of 0.1 percent.
- Construction spending fell 0.6 percent in June with both commercial and government construction falling. Residential construction spending was flat.
- Factory orders grew 1.5 percent in June. The U.S. Department of Commerce said this weaker than predicted result was pulled down by a decline in shipments.
- The Chicago Production Manufacturing Index from the Chicago Federal Reserve inched up slightly in July to 52.3 from June's 51.6. Both production and new orders declined.
- The Institute for Supply Management's Manufacturing Index showed a significant jump in July, rising from 50.9 in June to 55.4. This is the highest level the Index has reached since June 2011.
- The Institute for Supply Management's Non-Manufacturing Index followed the lead of its sister study (item above) and rose significantly in July to 56 after coming in at 52.2 in June. Sixteen of the 18 industries monitored by the Institute grew in July. These results have led some observers to believe the economy will be stronger in the second half of the year.
- Auto and light truck sales increased in July with most manufacturers chalking up double-digit sales gains. On an annualized basis, sales are running at 15.7 million vs. an annualized rate of 14 million a year ago.
Foodservice News This Week:
- Foodservice added 38,400 new jobs in June on a seasonally adjusted basis according to the U.S. Bureau of Labor Statistics. With the U.S. adding 161,000 private sector jobs during the month, this means that foodservice accounted for more than 23 percent of the new hires.
- Disappearing restaurants chains show the volatility of the business, but it is sobering to see the number of companies that had hundreds or more than a thousand restaurants that have virtually disappeared. Leading the list is Howard Johnson's which at one time was one the top three operators in the country and now has two restaurants according to Technomic, Inc. (as quoted on 247wallst.com). Then there's Ground Round which is down to 25 units, Bennigan's has 32, Sambo's has just 1 left, while Steak & Ale, Chi-Chi's, and Mr. Donut do not have any restaurants in the U.S.
- Fine-dining restaurants in shopping malls is a hot trend, at least in California according to the L.A. Times. Mall owners believe that upscale operations are "traffic draws."
- Made-to-order pizza may be the "next better burger" according to Technomic, Inc. The researcher believes such a concept fits in well with health and wellness trends.
- High corn prices, which bedeviled the foodservice industry with skyrocketing commodity costs, have been falling steadily as the result of favorable weather. Bloomberg reported that corn prices have hit a 33-month low.
- 7-Eleven's CEO has announced "a renewed focus on the U.S." He noted that the average 7-Eleven in the U.S. has daily sales of approximately $4,500 while in Japan the stores average $8,000.
- The "Kitchen of the Future" for Columbus-based White Castle is now operating, featuring an open design concept not commonly found in fast food restaurants. The chain believes that the new design will offer a "little bit of engagement" and costs are minimized by utilizing their in-house PSB Co. to do the fabrication.
- Growth Chains: Burger King has entered a partnership with an operator of fuel courts in South Africa and will open both company-owned and franchised operations therein. Tossed salad has an agreement with a franchisee in the United Arab Emirates to open up to 30 restaurants in the region, with the first to open next year. West Coast chain Unami Burger has opened its first N.Y.C. location with two more in development. Captain D's signed an agreement with a franchisee in Georgia to add 3 locations in the next 36 months. Houston-based Bullrito's has announced its goal to have 100 or more restaurants within 3 to 5 years. Cinnabon has a master franchise agreement for Eurasian Georgia for seven units in the next six years. Einstein Bros. Bagel's announced a franchise agreement for seven stores in Memphis, three in Birmingham and two each in Huntsville and Tuscaloosa. Dunkin Donuts anticipates having 150 restaurants in Germany within 5 years.
- Comparable Store Sales Reports: Applebee's (up 1.3 percent), Baskin Robbins (up 1.6 percent), Bloomin Brands (Blended up 2.0 percent, Outback up 2.8 percent, Carrabba's up 0.3 percent, Bonefish up 0.2 percent, and Flemmings up 3.8 percent), BJ's Restaurant (flat), Bravo Brio (total down 3.0 percent, Bravo down 1.6 percent, and Brio down 4.0 percent), Buffalo Wild Wings (company-owned operations up 3.8 percent and franchised units up 4.1 percent), Burger King (down 0.5 percent), Captain D's (up 5.3 percent), CEC Entertainment (up 2.9 percent), Einstein Noah (up 0.7 percent), Ignite Restaurant Group (up 1.3 percent), IHOP (up 1.3 percent), Jamba (system up 1.7 percent, company-owned up 2.2 percent, franchised units up 1.2 percent), NPC International (down 3.7 percent), and Ruth's Hospitality Group (up 4.6 percent).
For full details as well as recent reports for other chains same store sales, please click here for The Green Sheet.
Foodservice Supplier Financial Data: This week's report has the new quarterly financial reports for Ecolab and Libbey, Inc.