This Week in Foodservice: Sales Reports from the NRA, Sysco, ITW, Manitowoc and More

The NRA says September sales turned soft but gross domestic product did better than forecast in the third quarter. Sysco reports higher sales and profits.

The National Restaurant Association’s (NRA) Restaurant Performance Index declined by 0.9 percent to 101 in September. The Current Situation Index fell 0.8 percent to 101 as the Expectations Index fell a steep 1.1 percent to 100.9.

The only modest positive finding was that 63 percent of operators reported an increase in same-store sales, which was up from 62 percent in August. Other than that, all other statistics were unfavorable. Just 40 percent of operators reported increased traffic vs. 45 percent in August. In September, 33 percent of those surveyed said traffic declined while 31 percent in August reported their traffic was down.

As for the future, 40 percent of the operators surveyed said they expected sales gains in the next 6 months compared to 45 percent in August, who predicted higher sales in the next 6 months. Operators were also bearish on general economic conditions as well, with 20 percent who felt conditions would get be better in 6 months and 19 percent who thought conditions would be worse. In the previous study the respective numbers were 27 percent and 13 percent.

And, the generally pessimistic attitude carried over to purchasing as well. Capital spending activity — expansion, remodeling, and equipment — was reported by 49 percent of operators, which was down from 59 percent the month before. As for the next 6 months, 53 percent of the operators are planning capital expenditures, down from 59 percent last month.

While there is little to smile about in this month’s RPI, it should be noted that the index remains at a level that still indicates industry expansion.

And while there is no direct correlation between the NRA’s research and general economic conditions, both the Conference Board’s consumer confidence index and the Reuters/University of Michigan consumer sentiment index were soft in September then bounced back strongly to seven-year highs in October. We can hope that the restaurant industry will have the same experience.

Economic News This Week

  • Gross domestic product rose 3.5 percent, according to the Bureau of Economic Analysis’ advance estimate for the third quarter. This was higher than the consensus estimate of 3.1 percent. However, the increase in GDP was below the second quarter growth rate of 4.1 percent but far stronger than the minus 2.1 percent of the first quarter. The report called the third quarter gain “broad based.”
  • Both personal income and personal spending were disappointing in September. Personal income rose 0.2 percent but the forecast was for 0.3 percent. Personal spending fell 0.2 percent, indicating that consumers remain very cautious.
  • Initial jobless claims stayed well under 300,000 for the week ending October 25, rising 3,000 to 287,000. The 4-week moving average fell 1,000 to 281,000. While encouraging, falling jobless claims do not directly indicate increasing employment.
  • Durable goods orders fell 1.3 percent in September, the second straight month orders declined. Orders for transportation equipment fell 3.7 percent. More troubling was a 5.4 percent decline in orders for capital goods, the equipment used to manufacture other goods. This indicates businesses are not willing to invest for the future. The Census Bureau’s advance report also found that unfilled orders rose 0.3 percent in September after increasing 0.6 percent in August. The dollar level for unfilled orders now stands at the highest level since the commerce started the survey in 1992. However, this could reflect unwillingness on the part of manufacturing companies to purchase production equipment and/or hire more employees.
  • Car and light truck sales advanced strongly in October led by pickup trucks and SUVs. October is usually a so-so month for vehicle sales but U.S. volume rose 6.1 percent to 1.28 million units. Most major car manufacturers experienced sales growth except for GM, which was flat and Ford who had sales decline 2 percent. Ford had a shortage of trucks as the company shut down a factory in order to change over to a new F-150.
  • The Chicago Business Barometer rose 5.7 points to 66.2, the highest the barometer has been since October 2013. New orders rose sharply to 73.6 while production, employment, and order back logs also climbed. Any number above 50 indicates expansion.
  • Pending home sales rose by 0.3 percent in September over August, according to the National Association of Realtors. Compared to September 2013, pending home sales were up 1 percent.
  • September construction spending increased 0.4 percent over August but was below the forecast of +0.8 percent. The Census Bureau noted that construction spending was up 2.9 percent over September 2013. Residential construction was also up 0.4 percent vs. August.
  • Christmas spending to rise by 4 percent  to 5 percent based on a survey by Deloitte University.
  • The Small Business Optimism Index dropped 0.8 point in September to 95.3. This leaves the index 5 points under its prerecession average. The economist for the National Federation of Businesses stated, “Small businesses can’t seem to get out of second gear.”
  • The Consumer Confidence Index, which had fallen to 89.0 in September, bounced back in October to a 7-year high based on the Conference Board study. The Index rose to 94.5 with a sharp jump in the Expectations Index hitting 95.0, up from 86.4 in September. The Present Situation Index increased also, inching up to 93.7 from 93.0 even in September.
  • The Reuters/University of Michigan Consumer Sentiment Index final report for October rose to 86.9 driven by an Expectations Index that rose to 79.6, up from 75.4 in September. Like the Conference Board Consumer Confidence Index, the Reuters/University of Michigan study hit a 7-year high.
  • Global consumer confidence rose one point to 98 in the third quarter of year in the latest Nielson report. Consumer confidence in the U.S. increased 4 points which puts the country seventh overall behind India, Indonesia, Philippines, Thailand, United Arab Emirates, and China. At the bottom of the list was Italy with a reading of just 47. On a regional basis, consumers in Europe were the least confident scoring 78.

Foodservice News This Week

  • Sysco sales rose 6.2 percent in the company’s quarter ending September 27 with adjusted earnings per share up 6.1 percent over the corresponding quarter last year. Overall profits declined 2.3 percent. Sysco calculated food cost inflation at 4.9 percent. Acquisitions increased sales by 0.6 percent while foreign exchange rate adjustment decreased sales by 0.5 percent. Case volume in the company’s Broadline and SYGMA operations rose 2.2 percent excluding acquisitions. Given Sysco’s penetration into the foodservice market, the company’s financial results could be considered as an index of the industry’s performance.
  • Consumers are more tech-oriented when it comes to eating out. A recent survey for the National Restaurant Association found one third of consumers are more likely to use “technology-related options” in restaurants than two years ago. The technology tools included ordering, delivery, redeeming rewards, paying for meals, finding nutrition information, and looking up basic information such hours, locations and menu. As for people who don’t use any of the available technology, half said it was they prefer interacting with human beings.
  • The NPD Group reports Millennials are heavy restaurant users. While 18- to 34-year-olds are not the biggest spenders at restaurants, they more than make up for it in influence. Further, they are the largest of the six generational groups and will grow the most in the next 10 years. The NPD Group also pointed out popular belief holds that Millennials prefer fast-casual restaurants but in reality they visit fast food operations far more often than fast-casual restaurants.
  • McDonald’s is looking for a marketing push to improve sales and profits. Even the long running and well-received “I’m Loving It” is being scrutinized to see if it can be “freshened.” McDonald’s ad spending is estimated to be almost $1 billion.
  • Illinois Tool Works reported that the company’s food equipment sales rose 5 percent in the company’s last quarter.
  • Manitowoc reported that the company’s foodservice equipment sales rose 3.8 percent in the most recent quarter.
  • Standex International Corporation reported the company foodservice equipment group sales increased 13.4 percent in the firm’s last fiscal year.
  • Corporate Stirrings: J. Alexander’s Holdings, Inc. announced the company plans an initial public stock offering. The number of shares and the price per share have not yet been determined. GE Capital announced they have added account executives to franchise finance team “to focus on developing relationships with the next generation of restaurant operators nationwide.” MarLu Investment Group has entered into an agreement to purchase 22 TGI Friday’s restaurants in Texas and Colorado.
  • Growth Chains: Dos Coyotes Border Café has a franchise agreement for 25 restaurants in Los Angeles County. PizzaRev has signed franchise agreements for Denver; Washington, DC; Las Vegas; Long Island, N.Y.; and Columbus, Ohio, for at least 40 restaurants total. Boston Restaurant & Sports Bar plans to bring 8 to 10 units to Upper New York State in the next 5 years. Krispy Kreme is looking for a franchisee to open 5 units in Central Florida in the next 5 years. Quizno’s plans to open 1,000 restaurants by 2020.
  • Comparable Store Sales Reports: Applebee’s (up 1.7 percent), Buffalo Wild Wings (company-owned up 6 percent and franchised up 5.7 percent), Denny’s (system up 2.4 percent, company-owned 4.1 percent, and franchised up 2.1 percent), Ignite Restaurant Group (Joe’s Crab Shack down 4.4 percent, Macaroni Grill down 8.5 percent, and Brick House Tavern up 7.5 percent), IHOP (up 2.4 percent), Kona Grill (up 2.7 percent), Panera Bread (system up 1.4 percent, company-owned up 2.1 percent, and franchised up 0.7 percent), and Starbucks (up 5 percent).

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

 Foodservice Industry Equipment Supplier Financial Data: This Week there is the latest financial data for Ecolab, Illinois Tool Works, Manitowoc, Newell Rubbermaid, Standex International, and Sysco. For full report on supplier financial performance please click here.

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