The National Restaurant Association’s June Restaurant Performance Index posted a reading of 100.3, a decline of 0.3 percent. This marks the second consecutive month the index of restaurant industry economic indicators posted a decline.
The study’s Current Situation component read 99.9, also a decline of 0.3 percent. Slower same-store sales and customer traffic fueled the decline. The Expectations Index read 100.7, a decline of 0.4 percent. Operators appear to be losing confidence in both their own businesses as well as the economy as a whole.
The operators’ declining performance and view of the future showed up in their responses to the purchasing questions. Fifty-five percent of operators reported making a capital expenditure in June, down sharply from May’s level of 64 percent. Similarly, in June 57 percent of operators reported plans to make a capital expenditure in the next 6 months, down 5 percent from May.
Overall, the report doesn’t forecast a crash and burn scenario but taken in context with other indicators — Knap-Track, chain comparable store sales data, bearish Wall Street forecasts, etc. — foodservice growth appears to be slowing down.
Economic News This Week
- U.S. gross domestic product grew at 1.2 percent during the second quarter, per the Bureau of Economic Analysis. Some economists had forecast gross domestic product to rise 2.6 percent. The BEA revised 2015 Gross Domestic Product upwards to 2.6 percent which, while far from outstanding, makes it the best year since 2006.
- Initial-jobless claims were 266,000, an increase of 14,000 for the week ending July 23. The 4-week moving average totaled 256,500, a decline of 1,000.
- Both presidential candidates support raising minimum wage. Donald Trump, reversing his previous position, now says he would support increasing the federal minimum wage. Upon questioning by the interviewer, he said that $10 an hour would be acceptable to him. Hilary Clinton previously announced that she believes the minimum wage should be increased to $12 an hour but she was flexible on the amount.
- June new single family home sales were projected to total 592,000 on a seasonally adjusted annual rate, per the U.S. Census Bureau. This represents an increase of 3.5 percent over projections for May and 25.4 percent compared to June 2015.
- The Chicago Purchasing Managers’ Index slipped in July to 55.8. Despite declining 1 percent, the index remains in expansion mode.
- Durable goods orders declined by 4.0 percent in June compared to May according to an advance report from the U.S. Census Bureau. Declining transportation goods orders were responsible for most of the fall. Without the transportation segment, June durable goods orders were down 0.5 percent from May. Shipments rose 0.4 percent while unfilled orders decreased 0.9 percent. New orders for capital goods — those goods used to manufacture other goods — dropped 11.3 percent, indicating a continuing lack of business investment.
- The Conference Board’s Consumer Confidence Index remained essentially unchanged in July. The Index stands at 97.3 after rising to 97.4 in June. The Present Situation Index rose to 118.3 from 116.6 in June while the Expectations Index fell to 83.3 in July from 84.6 in June.
- The University Of Michigan Index of Consumer Sentiment read 90 in July, down from June’s reading of 93.5. The Current Economic Conditions Index was 109.9, down slightly from June’s reading of 110.8. The Index of Consumer Expectations fell to 77.8 in July from 82.4 in June. The University of Michigan said that higher income consumers were less optimistic, primarily as a result of turmoil in Europe.
Foodservice News This Week
- Chipotle will introduce a new burger concept this fall. Operating under the name Tasty Made, the first location will be in Lancaster, Ohio. Initial reports indicate the better-burger concept’s menu will include, naturally, burgers, fries, shakes and soft drinks.
- Is food ruling real estate? Commercial real estate giant CBRE thinks that as E-commerce pulls consumers away from shopping malls, foodservice operations are bringing them back. CBRE’s research head calls restaurants the saving grace for landlords. One emerging trend is for malls to line up food trucks. The trucks bring variety and are always changing. Mall owners also think smaller food startups have the potential to drive traffic to apparel stores.
- One investment analyst sees restaurants heading toward a recession. Longtime restaurant stock analyst Paul Westra of Stifel says, at a minimum, comparable store sales for all restaurant categories will decline 1.5 percent to 2.0 percent and that the average restaurant chain will miss its comparable sales estimate by minus 0.3 percent. Further, Westra believes the restaurant recession is an indicator of a general recession for the U.S. economy in 2017.
- McDonald’s continues to roll out its next-generation restaurant. The “Experience of Tomorrow” concept is evolving and focuses in large part on tablets for ordering, bill paying and entertainment. The system is believed to handle complicated orders better than humans, a factor that is critically important for customized menu items. McDonald’s said it is too early for a complete rollout plan but 50 percent of the restaurants in Canada have been converted as have 40 percent in the UK and 25 percent in France.
- Captain D’s says its new design has netted improving sales. About half of the company’s 500 units have been reimaged with another 50 locations to be completed by the end of the year.
- Old Chicago Pizza will “refresh” 37 existing restaurants with franchisees spending an average of $150,000 per unit. In addition to renovating the interior and exterior of the restaurants, there will be upgraded beer equipment and systems including the tap tower, glass mug coolers, stainless glass storage cabinets, stein racks, spritzers and chillers.
- Holler & Dash, Cracker Barrel’s fast casual concept, will open in Brentwood, Tenn. Featuring biscuit sandwiches, breakfast bowls, and sides the concept’s goal is to attract millennials. Cracker Barrel is thought by some to be the anti-millennial restaurant. There are currently Holler & Dash units in Tuscaloosa and Birmingham, Ala.
- Shake Shack keeps slowly expanding its breakfast program. The fast-casual chain offers breakfast at six locations in the New York City area but the company has not given any timetable for rolling out breakfast to its other 58 locations.
- Little Caesar’s looks for a slice of the breakfast daypart. The chain offers three variations of breakfast sandwiches called a pizzini. As part of the test, Little Caesar’s offers breakfast at 10 locations. The story did not indicate if operators had to purchase additional equipment to support the new product.
- The purchase of McDonald’s operations in Asia is risky business according to letters sent out by the Service Employees International. The union contends purchasers of the restaurants would be at disadvantages due to McDonald’s “troubling master franchise model…”
- McDonald’s will add 5,000 jobs in Britain by the end of 2017. Despite challenging economic conditions, McDonald’s is reaffirming its commitment to the country. While leaving the EU is believed to have a negative effect on the British economy, some retailers have reported that they have yet to see any fall off in demand.
- Corporate Stirrings: NPC International closed on the acquisition of 39 Wendy’s units from the Wendy’s Company. The cost of the restaurants was given as $35.6 million plus working capital. The units are all located in North Carolina’s Raleigh-Durham area. A franchisee closed 10 Ruby Tuesday restaurants in Illinois.
- Growth Chains: Slim Chickens plans to open 15 locations in Northern Texas in the next 8 years. Costa Vida Fresh Mexican Grill projects opening 20 units this year which will bring its total number of restaurants to almost 100. Kneaders Bakery & Café, which just opened their 50th restaurant, will open 5 more by the end of 2016. Dickey’s Barbeque Pit will open 3 restaurants in Mississippi.
- Comparable Store Sales Reports: Arby’s up 3.7 percent, Bloomin’ Brands (combined down 2.3 percent, Outback down 2.5 percent, Carabba’s down 4.8 percent, Bonefish Grill up 0.9 percent, and Flemming’s down 0.8 percent), Buffalo Wild Wings (company owned locations down 2.1 percent and franchised units down 2.6 percent), Cheesecake Factory up 0.3 percent, Kona Grill up 2.5 percent, Panera Bread (systemwide up 2.3 percent, company owned up 4.2 percent and franchised up 0.6 percent), Ruth’s Chris Steakhouse up 1.5 percent and Texas Roadhouse (company owned stores up 4.5 percent and franchised locations up 2.6 percent.)
For details and same-store sales of other chains, please click here for the Green Sheet.