Published on Tuesday, 09 December 2014
Written by Jerry Stiegler
The employment picture brightened in November with foodservice doing heavy hiring. Is $2.00 a gallon gas in our future? McDonald’s continues to face struggles. Starbucks is broadening its menu. And a lot more.
The U.S. labor market may be racking up its strongest job growth in 15 years with the Bureau of Labor Statistics reporting that employment grew by 321,000 jobs in November. Private employers added 314,000 new workers and various government entities added 7,000.
Other good news was that the BLS increased the number of new jobs in October by 29,000 and in September by 15,000.
The unemployment rate remained at 5.8 percent and some of the other news was not encouraging. The number of long-term unemployed and those working part-time jobs who would prefer full-time employment were little changed.
Foodservice operators aided the employment improvement by adding 26,500 new employees. Actually this was far from the best month for foodservice hiring. The average number of new hires so far in 2014 averages 26,000 per month. But still, foodservice accounted for 8.4 percent of all the new employees last month.
The National Restaurant Association responded to the strengthening job numbers by predicting that one result may be an increase in restaurant sales, citing their research showing that 40 percent of adults would like to patronize restaurants more often.
Finally, the Bureau of Labor Statistics studies the rate at which employees quit every month and while the Bureau combines foodservice with the lodging industry, this segment has the highest quit rate. In September the quit rate was 4.2 percent vs. 2.2 percent for all of private industry. It is considered a sign of confidence when employees resign.
Economic News This Week
- $2 a gallon gas by Christmas? Some experts think it is possible in some parts of the country due to OPEC’s decision not to cut oil production. This will put some extra dollars in consumers’ pockets, which might drive Christmas sales and raise restaurant traffic.
- ADP’s National Employment Report shows the economy added 208,000 jobs in November with small businesses — those with fewer than 50 employees — accounted for 101,000 of the new hires.
- Initial jobless claims fell by 17,000 in the week ending November 29 with claims back below 300,000 again at 297,000. The 4-week moving average rose 4,750, pulled up by an increase of 22,000 the previous week. But, average weekly claims for the last 4 weeks were back under 300,000 at 299,000. Thus, it appears that the spurt in claims the week of November 22 may have been an anomaly.
- The Institute For Supply Management Non-Manufacturing Index rose 2.2 percentage points to 59.3 in November. (Any reading over 50 indicates increased activity in the service industries.) The Institute noted that 14 of the 17 industries included in the study reporting increased activity.
- Productivity for the third quarter was revised upwards to 2.3 percent in the Bureau of Labor Statistics most recent estimates. Unit labor costs were also revised by the Bureau to minus 1.3 percent. Economists and other observers feel these are two of the most important factors in determining the overall health of the economy but there are problems with these statistics. First they are hard to measure and, second, there is widespread disagreement on what effects the numbers. Third, economists have been unable to make predictions on how the numbers will change.
- November auto and light truck sales chalked up another stellar month with most car companies seeing significant volume increases. Leading the way were sales of pickups and SUVs undoubtedly helped by falling gasoline prices.
- October U.S. construction spending rose 1.1 percent over September with the Census Bureau also reporting that spending was up 3.3 percent vs. October 2013. Residential construction was up 1.3 percent over September.
Foodservice News This Week
- McDonald’s had another tough month in November with comparable store sales falling by 2.2 percent. In the U.S., McDonald’s largest market, comps fell steeply by 4.6 percent. Europe saw same-store sales decrease by 2 percent and comps for Asia/Pacific, Middle East and Africa fell by 4 percent. In the case of the latter, soft sales were due to supplier related problems in China and Japan. The company said comp store sales in Latin America, Canada and Australia were positive. Actual sales were down 6 percent or were flat taking into account currency fluctuations.
- McDonald’s Supersized Menu was the topic of a major story in the Wall Street Journal. This is hardly a breakthrough in journalism since McDonald’s franchisees have been saying it for years and, as the article itself pointed out, McD’s executives admitted last year the plethora of menu items caused production headaches. The article also pointed out that other foodservice operations have the same problem including Burger King and Starbucks. The latter’s offerings have grown from 181 in 2009 to 255 menu items with resulting service problems causing a slowdown in traffic growth.
- Starbucks is going full speed ahead to increase their food business. The chain, which dropped the word coffee from their logo sometime back, has increased food sales at breakfast and lunch and now is targeting evening meals with small plate offerings, beer and wine. The company plans on expanding the evening menu to 2,700 locations in the next 5 years. The company states it is well aware of the problems complex menus can pose (see item above) but plans to speedup service include introducing mobile ordering and payment technology that will allow customers to place orders before they enter the store.
- C-Store operators are bullish about next year according to the just-released CSP Outlook Survey which found 75 percent of operators thought conditions were “excellent” or “good” with just 1.8 percent thinking they were “poor”. Almost 67 percent thought sales would be “much higher” or “somewhat higher” in 2015 while just 1.2 percent predict sales would be “much lower.”
- Burger King’s acquisition of Tim Horton’s was approved by the Canadian government but with a number of conditions and restrictions including maintaining current employment levels. Burger King Worldwide also agreed not to change current franchise terms and rents for at least 5 years and to accelerate the expansion of Tim Horton’s in the U.S.
- Fresh & Easy has introduced a “smarter market” concept in some of the company’s Las Vegas stores. Included in the update is a new “Fresh to Go” hot food bar featuring made-to-order sandwiches and pizza. Fresh & Easy operates 167 stores in Arizona, California and Nevada.
- Fast food workers continue to protest. Organized employee protests occurred in numerous cities last week. While media coverage has been largely sympathetic, it is not clear how many employees are involved and the impact on restaurant operations. One report from New York said that one McDonald’s unit was forced to close. The organizers stated that many fast food employers are college graduates who have not been able to find other employment.
- Corporate Stirrings: United Ohana, a newly formed company whose founder is the owner and operator of 69 Applebee’s, will purchase the 20-unit Roy’s seafood chain from Bloomin’ Brands. Jamba Juice has hired Peak Franchise Capital to serve as an advisor for the chain’s previously announced plan to become at least an 80 percent franchised operation.
- Growth Chains: Marco Pizza’s franchisee in Tennessee plans on opening 19 units in the next 6 years including 6 in Memphis. McAlister’s Deli has signed development agreements with 3 new franchisees for a total of 20 restaurants in Rochester, N.Y. as well as Chicago and Northwest Indiana. Corner Bakery Café’s Montana franchisee will open 5 locations. Wahlburger’s announced multi-unit franchise agreements for 20 restaurants in Florida and 7 restaurants in the New York City area with a goal of eventually having 300 locations nationwide. Royal Farms, a 168-unit C-store chain plans on expanding into Pennsylvania, New Jersey and Delaware and has the first 4 stores set to open. Agora Grille & Sports Bar, a 9-unit chain in Central Pennsylvania, has signed a multi-unit franchise agreement for a minimum of 3 locations in Chicago, Phoenix/Scottsdale, and San Antonio. Taco Bell plans to increase their current 250 overseas locations by 1,300.
- Comparable Store Sales Reports: COSI (Up 2.5 percent) and McDonald’s (Down 4.6 percent).
For details and same-store sales reports of other chains, please click here for the Green Sheet.