Published on Tuesday, 21 October 2014
Written by Jerry Stiegler
The Commerce Department reported weak September retail sales but restaurants enjoyed a fair increase. First-time jobless claims fell to a 14-year low. The Sysco/U.S. Foods merger may have hit a stumbling block. Malcolm Knapp is optimistic about casual restaurant sales. McDonald’s is still searching for answers.
U.S. retail sales unexpectedly dipped in September with the Census Bureau reporting a decline of 0.3 percent over August. Sales were up 4.3 percent over September last year and are up 3.9 percent for the first 9 months of this year. Automobile sales (including automotive parts) fell 0.8 percent in September vs. August. Without auto sales and parts, total September U.S. retail sales were down 0.2 percent.
However, restaurants and bars beat the overall market, rising 0.6 percent in September over August. Restaurant and drinking place sales were up 7.1 percent over September 2013 and are up 5.2 percent in the first 9 months of the year.
Restaurants and bars are not only outperforming the market as a whole but are the fourth fastest growing retail segment this year. Only motor vehicles and parts (up 8.1 percent), health and personal care stores (up 6 percent), and non-store retailers (up 6.8 percent) have grown sales faster than foodservice’s 5.2 percent rate.
As we remind readers every month, there are some qualifications and limitations to the Census Bureau numbers. The sales are “advance” numbers, based on a small sample and are subject to revision. The Bureau surveys restaurants and bars only. Hotels, motels, resorts, retailers, clubs, and none of the “institutional” segments — healthcare, education, employee feeding, etc. — are studied. Finally, most of the data is adjusted for seasonal changes, weekends, etc. but not for menu price inflation. The 9-month sales figures are unadjusted.
Economic News This Week
- Initial jobless claims fall to a 14-year low. The Department of Labor reported that first-time jobless claims fell by 23,000 to 264,000 for the week ending October 11. This is the lowest number of claims since April 15, 2000. The 4-week moving average for claims dropped 4,250 283,500 claims. This is the lowest 4-week average for claims since June 10, 2000.
- The Producer Price Index fell to minus 0.1 percent in October led by a significant drop in food and energy prices. Both declined by 0.7 percent. And both goods and service price were down, falling by 0.2 percent and 0.1 percent, respectively. Thus, it appears there doesn’t seem to be much inflationary pressure in the economy.
- Industrial production rose 1 percent in September, led by a 1.8 percent increase in mining and 3.9 percent increase utility output. Manufacturing rose 0.5 percent after declining a like amount in August. The Federal Reserve said total industrial production was up 4.3 percent last month over September 2013.
- The Empire State Manufacturing Survey retreated sharply in October falling to +6.2 after rising to +27.5 in September. Any figure above zero shows expansion. The New York Federal Reserve also found that new orders actually went negative to minus 1.7 while shipments fell to +1.1, meaning shipments were virtually flat. On the positive side, the Fed’s employment index rose 7 points to +10.2 showing that employers are confident enough to hire.
- The Philadelphia Manufacturing Business Activity Survey softened in October, falling to 20.7 from 22.5 in September. The Philadelphia Federal Reserve said that new orders rose 2 points but shipments and employment indexes both declined.
- September housing starts were 1,017,000 on a seasonally adjusted annual rate, which was 6.3 percent over August and 17.8 percent over September 2013. Single-family housing starts were up 1.1 percent over August. September building permits issued were 1,018,000 on an annual seasonally adjusted rate. This was 1.1 percent over August and 2.5 percent over September 2013. Single-family permits issued were down 0.5 percent from August.
- The National Association Home Builders Association/Wells Fargo Housing Market Index fell 5 points in October to 54. Any number over 50 means more home builders are optimistic than pessimistic. The Index had risen in each of the four past months.
- The Reuters/University of Michigan Consumer Index hit a 7-year high, rising to 86.4 in the preliminary October reading in spite of the Ebola news and a tumbling stock market. The index has not been this high since July 2007. The current situation component of the index was steady at 98.9 while the expectations index rose to 78.4. The latter reading is the highest since October 2012.
Foodservice News This Week
- The Sysco/U.S. Foods Merger may be in trouble, with the NY Post reporting that the Federal Trade Commission is considering filing suit to block the deal. It is not clear if the two giant distributors can make accommodations to satisfy the FTC.
- Malcolm Knapp is “cautiously optimistic” that the improvement in casual restaurant sales will continue, given falling gasoline prices and growth in the jobs market. Noting that comparable store sales were up in the first week of October, Mr. Knapp urged chain operators to target high income consumers pointing out that high-end steak houses — which is a separate study from Knapp-Track — had a 6.3 percent increase in comparable store sales in September. Mr. Knapp’s information is courtesy of Bank of America Merrill Lynch.
- McDonald’s difficulties continue with third quarter comparable store sales falling 3.3 percent both worldwide and in the U.S. This decline was worse than forecast. A survey of a few McDonald’s operators by stock brokerage Janney Montgomery Scott found some McDonald’s franchisees are relying on the Monopoly game promotion “to stop the bleeding.” One franchisee said that McRib sales should prevent further decline even though the corporation has announced that the McRib sandwich will not be national but a local option. Still another franchisee said the company is leaderless while others complained that the company has not come through on their promise to simplify the menu. The Janney Montgomery Scott information is courtesy of Scott Hume, publisher of BurgerBusiness.
- Add Johnny Rockets to the list of chains using tabletop tablets for customer orders. The company will be rolling out the tablets to 200 units as replacement for jukeboxes as well as for ordering. A 3-month test saw table turn times increase by 11 percent.
- Breaded chicken sandwich sales have grown 3 percent on average over the last 4 years and in the year ending this last July, totaling 2.4 billion sandwiches. But, the NPD Group study also found hamburger sales increased 3 percent last year with 9 billion burgers sold.
- Thornton’s C-stores boosted food sales by more than 50 percent in 7 stores the chain recently renovated in Louisville. The company’s CEO said the stores are now more of a destination for consumers.
- Corporate Stirrings: Habit Restaurants, Inc., a 98-unit burger chain headquartered in Irvine, CA., has filed for an initial public offering of common stock. Chuck E. Cheese has announced the purchase of Peter Piper Pizza from ACON Investments for an undisclosed sum.
- Growth Chains: Project Pie has signed a new master agreement to add 60 locations in the United Kingdom and Ireland. Fox Restaurant Concepts, which operates 46 restaurants under 15 different concepts, plans on opening 18 restaurants in the next 3 years. Johnny Rockets, which has over 100 restaurants outside the U.S., plans on doubling that number by 2017. Popeye’s is looking for franchisees to open 15 to 20 stores in the Boston area in the next 5 years and to add a total of 30 units in the next decade.
- Comparable Store Sales Reports: COSI (down 1.5 percent), Del Frisco (system up 3.7 percent, Del Frisco up 8.4 percent, and Sullivan’s up 0.6 percent), Domino’s (system up 7.7 percent, company owned up 6.1, and franchised up 7.8 percent), and McDonald’s (down 3.3 percent).
For details and same-store sales of other chains, please click here for the Green Sheet.