L.A. Restaurants Want to Count Tips, McDonald’s Struggles, and Hooters to Collect Hamburgers

The U.S. economy continues to stumble forward. Los Angeles restaurant operators want to change minimum wage calculations. McDonald’s woes continue. Hooter’s parent collects hamburger chains. These stories and a whole lot more in This Week in Foodservice.

With many reports covering the first quarter of this year now available it is easier to draw some overall conclusions about the health of the economy.

Some experts predict that first quarter Gross Domestic Product will be negative. The manufacturing segment of the U.S. economy appears weak. Many studies, a number of which are regularly cited in this blog, continue to report unimpressive numbers. Recent U.S. Commerce Department numbers show a lack of spending on capital equipment, perhaps reflecting a lack of confidence on the part of manufacturers.

The housing market remains a far cry from its pre-recession levels. Housing has a broader impact than at first it might appear because people purchasing homes spend money on furniture, appliances, flooring, electronics and décor.

The drastic decline in the price of crude oil has freed up dollars for consumers to spend but at the same time the oil glut has resulted in the loss of good paying jobs.

One bright spot has been the auto and light truck market, which continues to rack up strong sales. And the stock market is performing at a high level though some economists believe stock prices have been artificially inflated by the Federal Reserve’s low interest rate policy.

The fact is that the recovery from the so called Great Recession remains a work in progress. A recent op-ed piece in the Wall Street Journal documented exactly how weak this recovery is and it was downright scary.

Despite all the negative factors in the economy it seems that the foodservice industry continues to grind out some growth. Foodservice remains a mature, slow growth industry but a glance at the weekly Green Sheet shows 90 percent of the publicly owned restaurant chains have some comparable store sales growth. The key factor in our business is that people like to eat out and that doesn’t appear to have changed.

Economic News This Week

  • Initial jobless claims held steady in the week ending April 18 with the Department of Labor reporting 295,000 claims, which represents an increase of 1,000. The 4-week moving average hit 282,750, an increase of 1,750.While they don’t appear to be a problem in the job picture, it is important to remember that fewer layoffs do not automatically translate into more jobs.
  • Durable goods orders increased 4.0 percent in March according to the Department of Commerce’s advance estimate. Orders for commercial aircraft and motor vehicles served as the primary drivers. Without transportation, durable goods orders were down 0.2 percent. Orders for capital goods – those goods used to manufacture other goods – declined 0.5 percent indicating that businesses are not willing to make investments.
  • Existing home sales rose sharply in March to 5.19 million on a seasonally adjusted annual rate. This is 6.1 percent more than February’s level of 4.89 million and 10.4 percent more than March of 2014. Spokesman for the National Association of Realtors attributed the increase to low interest rates and an improving job market.
  • Projections have March new home sales hitting 481,000 at a seasonally adjusted annual rate. This is 11.4 percent below the estimated sales for February but up 19.4 percent from March 2014.
  • The National Association of Home Builders/Wells Fargo Housing Index hit 56 in April, an increase of 4 points. Current sale conditions hit 61, a 3-point increase, and expectations for sales in the next 6 months reached 64, an increase of 5 points. Any number in excess of 50 means more builders see conditions as good than builders who consider conditions poor.

Foodservice News This Week

  • Los Angeles restaurant operators want tips counted as part of minimum wage increases. Restaurant managers claim that tipped employees make $30 or more an hour and higher minimum wages give money to those who need it the least. California law currently does not allow tips to be counted as part of minimum wage.
  • McDonald’s reported financial results for its first fiscal quarter and as expected, the hamburger giant didn’t perform well. Corporate same-store sales were down 2.3 percent with U.S. comparable store sales declining 2.6 percent. Total sales declined 1.0 percent when adjusted for currency fluctuations with net profits down 26 percent with currency adjustment. McDonald’s management has stated they will announce a new plan on May 4. The company stated earlier that they had closed 350 underperforming restaurants in the first quarter.
  • Chanticleer, owner and franchisor of 400-plus Hooters restaurants, has acquired a series of small burger chains over the last few years. They include American Roadside Burgers, The Burger Company, BGR: The Burger Joint and BT’s Burger Joint. In an interview with Scott Hume, publisher of Burger Business, Mike Pruitt, Chanticleer’s CEO, indicated the company will continue to search for regional burger chains and intends to expand them both in the U.S. and overseas.
  • McDonald’s franchisee Oether Foods will begin construction of what will become the world’s largest entertainment McDonald’s. It will be next to the current complex on International Drive in Orlando. McDonald’s corporate has purchased the site adjacent to where Oerther Foods new complex will be built.
  • The number of breakfasts schools serve has doubled in the last two decades as more schools are serving breakfast to all students rather just those from low-income families. Some schools also choose to serve breakfast in the classroom during instruction time.
  • Eighty-six percent of c-store operators are optimistic about the second quarter of this year, according to a NACS Retail Study. In fact, 63 percent of those surveyed feel confident they can successfully compete with fast food restaurants for consumers’ prepared food dollar.
  • Corporate Stirrings: Damon’s should emerge from bankruptcy soon after a marathon 6-year process. The chain was purchased by the Unique Ventures Group LLC, which also owns 30 Perkins Restaurants and a dozen Burger Kings.
  • Growth Chains: Corner Bakery Café signed a 13-location deal for the Greater Cleveland area. Pies & Pints will expand from its Columbus, Ohio, home base with the opening of two restaurants in the greater Cincinnati area. Krispy Kreme signed an agreement to add 10 stores in Cambodia over the next 10 years. Uncle Maddio’s Pizza signed a development deal for a total of 13 restaurants in Louisiana, Mississippi and Tennessee. Smashburger has a new franchise agreement to develop 35 restaurants in the United Kingdom. Donato’s Pizza, which has 168 units, plans to hit 200 by the end of 2018. Spoleto – My Italian Kitchen with 380-plus locations in Mexico, Central and South America, has opened their first U.S. restaurant in the Orlando area with 2 more to quickly follow.
  • Comparable Store Sales Reports: Baskin Robins up 8.0 percent, Burger King up 6.9 percent, BJ’s Restaurant up 3.2 percent, Chipotle Mexican Grill up 10.4 percent, Domino’s (system up 14.5 percent, company owned up 15.9 percent and franchised up 14.4 percent), Dunkin’ Donuts up 2.7 percent, McDonald’s down 3.9 percent, Starbucks up 7.0 percent and Tim Horton’s up 8.9 percent.

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

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