Fast Food B'fast Wars Heat up, Americans Are Eating Their Savings and More

Government numbers show good restaurant sales in April. US Foods is getting antsy over delay in the Sysco merger but no quick decision is anticipated. Seattle operators struggle with minimum wage increase. YUM may divest its Chinese businesses. These stories and a lot more in This Week In Foodservice.

Retail sales in April were virtually unchanged from March according to the Census Bureau’s advance monthly estimate. Sales were up 0.9 percent over April 2014.

 Total retail sales excluding motor vehicles and parts were up 0.1 percent.

One bright spot in the report was the Bureau’s advance estimate for March was revised up from +0.9 percent to +1.1 percent.

Restaurant and drinking place sales neatly outperformed the total retail market with April sales up 0.7 percent over March. Further, on a percentage basis, restaurants and bars have been the top performing retail segment with sales up 8.5 percent since April 2014.

The usual cautions to this data apply. The April report is based on a limited sample and is subject to revisions. The Census Bureau only surveys restaurants and bars. Other foodservice operations – hotels, resorts, clubs, schools, colleges, employee feeding, healthcare, etc. – are not included. Most of the data is adjusted for seasonal changes, weekends and holidays but not for menu price changes.

Economic News This Week

  • Initial jobless claims declined by 1,000 to 264,000 for the week ending May 9. The 4-week moving average fell 7,750 to 271,750 the lowest this average has been since April 22, 2000. Given the increase in population, jobless claims are running at historical lows.
  • Small business operators’ optimism rose slightly in April with the National Federation of Independent Business Small Business Optimism Index increasing by 1.7 Points to 96.9. Nine of the 10 components on the Index rose but the only one to show a significant jump was Earnings Trends. The Index remains below its historical average as it bounces between 95 and 98.
  • The Producer Price Index for Final Demand Goods and Services fell 0.4 percent in April, according to the Bureau of Labor Statistics. The Index for final demand goods fell 0.7 percent while the prices for “core” final demand goods, which excludes food and energy prices fell 0.1 percent. The Index for final demand services fell 0.1 percent. In the last 12 months prices for final demand goods and services have declined 1.3 percent.
  • Industrial production fell in April by 0.3 percent. This was the fifth consecutive month industrial production dropped. The primary reason for the decline was a 0.8 percent fall in oil and gas well drilling. Manufacturing output was flat vs. March. Overall production was up 1.9 percent in April over April 2014.
  • Capacity utilization decreased in April by 0.4 percent to 78.2. This rate is 1.9 percentage points below its long run (1972-2014) average.
  • The Empire State Manufacturing Survey from the NY Federal Reserve showed a slight improvement in May with the general business conditions index rising 4 points from April to 3.1. The new orders index rose 10 points to 3.9 while the shipments index was little changed at 14.9 but still showing growth. (Any number over zero in this study indicates expansion.)

Foodservice News This Week 

  • US Foods might walk away from the Sysco merger. A US Foods executive told a the presiding judge on the case brought by the FTC that his company is unwilling to undergo a lengthy period of uncertainty while engaging in a legal fight over the antitrust matter. In other news, there will be no quick decision on the case. The federal judge hearing the case has extended the hearing at least through May 28 and has not given any indication when the hearing will be terminated or when a decision might be handed down.
  • Seattle restaurants struggle with an $11 an hour minimum wage and are looking at a $15 an hour wage rate in the future. Sales are good with Seattle’s booming economy but operators are trimming hours and increasing prices. One restauranteur has increased menu prices by 21 percent but eliminated tipping and now pays $15 an hour, 3 years ahead of schedule. One operator of a pizza franchise has announced she will close the business by the end of summer and another multirestaurant owner said he may close some of his businesses, too.
  • Breakfast war heats up. Taco Bell’s entry is seen as just the first battle in the war. CKE, Starbucks and Dunkin’ Donuts are all introducing new items to lure the breakfast crowd. Some observers wonder how long it will be before fast-casual players like Chipotle enter the breakfast field. But, one consultant calls breakfast a Band-Aid for fast food restaurants whose traditional menus no longer appeal to consumers.
  • Are Americans eating their savings? According to a recent HarrisPoll, Americans admit there are not saving enough for retirement and say the number one culprit is eating out.
  • Corporate Stirrings: YUM Brands may spin off their China business, according to J.P. Morgan, which called the move a probability not just a possibility. YUM receives a third of its operating income and half of its revenue from its China operations. Jamba, Inc. announced the company’s board has approved raising the amount of money for share repurchase from $25 million to $40 million. Diversified Restaurant Holdings, a major Buffalo Wild Wings franchisee, plans to acquire 18 Buffalo Wild Wings restaurants in the St. Louis area for a price of $54 million. The company will acquire full rights to the market and the ability to build more restaurants.
  • A shoot out at a Twin Peaks restaurant in Waco, Texas, between rival motorcycle gangs left 9 dead and 18 injured. According to news reports, the headquarters of the 70-unit chain revoked the Waco franchise, claiming that the franchisee had been warned about potential dangers at the operation.
  • Growth Chains: Pie Five Pizza has signed a development agreement for 24 new restaurants in Northeastern states. The Tilted Kilt Pub has signed a deal for 24 new locations in the New York City Area and Northern New Jersey plus 9 more in Pennsylvania and upstate New York. Uno Due Go, the fast-casual concept from Uno Restaurant Holdings will open 1 or 2 locations every 12 to 18 months for the next 3 to 5 years. Planet Sub has signed an agreement to develop 12 stores in San Antonio. McAlister’s Deli has signed development agreements for Georgia and Florida.
  • Comparable Store Sales Reports: Arcos Dorados up 9.4 percent, Ark Restaurants down 6.1 percent, Captain D’s up 4.9 percent, Country Style Cooking down 7.3 percent, Del Taco up 7.7 percent, El Pollo Loco (system up 5.1 percent, company-owned up 3.5 percent, and franchised up 6.2 percent), Jack in the Box (system up 8.9 percent, company-owned up 7.4 percent, and franchised up 9.4 percent), ONE Group Hospitality down 3.5 percent, Qdoba (system up 8.3 percent, company-owned up 7 percent and franchised up 9.6 percent) and Shake Shack up 11.7 percent.

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

 

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