Published on Tuesday, 30 August 2016
Written by Jerry Stiegler
Here’s what caught my eye to be worthy of a second look this week: major foodservice industry supplier’s P&Ls; soft chain sales − with increased menu prices getting the blame; the NRA’s 5 reasons why they are bullish on the restaurant business; and YUM! Brands application for federal trademark registrations on 2 food safety slogans.
How are foodservice equipment and supplies providers doing financially? While many foodservice suppliers are privately held and do not report their financial results, the sector does feature a few publicly traded companies. This blog post looks at the quarterly accounting reports for a dozen publicly held companies.
With the exception of the broadline distributors -- Performance Food Group, Sysco and US Foods – foodservice is only part of most of these companies’ businesses and, in some cases, a very small part. Some of the companies do provide a few details on their results by segment but not one provides a look at their net profit. Thus, the numbers shown are for the total corporation. The obvious problem is that the total corporate performance could be great but foodservice sales might actually be down. And the reverse could be true: The foodservice division could have had an excellent quarter but other industry segments pulled the corporate results down.
It is also possible that the corresponding quarter the previous year might have been exceptionally good – or bad – making comparisons difficult. Then, too, unusual factors such as a merger, an acquisition or a divesture can greatly affect a firm’s results.
With all that as background, 7 of the 12 corporate data I pulled had sales decline from the corresponding quarter. As far as net revenue changes, it was an even split. Six saw their profits increase and 6 experienced a decrease in net profit. Only one firm had a loss.
Economic News This Week
- Second quarter gross domestic product grew +1.1 percent according to the second-quarter estimate from the U.S. Department of Commerce. This was a slight drop from the preliminary estimate of +1.2 percent. Economists believe consumers, who account for 70 percent of the U.S. economy, will keep spending, but business investment continues to lag. The diminished rate of growth shown by GDP continues to show the slow, painful recovery from the Great Recession.
- Sales of new homes increased to a seasonally adjusted annual rate of 654,000 in July, according to estimates jointly released by the U.S. Census Bureau and the Department of Housing and Urban Development. This is a 12.4 percent increase over June sales and a 31.3 percent jump over July of last year. July sales were the highest since October 2007, but far below the peak of 1.39 million in July 2007.
- Existing home sales slowed to an adjusted annual rate of 5.39 million in July, a decline of 3.2 percent. That represents a decline of 1.6 percent from July 2015. This is only the second time in 21 months that year-over-year existing home sales have declined, per the National Association of Realtors.
- The lowest paid workers are getting pay raises. The Wall Street Journal reports that in the second quarter full-time workers making about $13 an hour saw a 3.1 percent rise over the year before. That is the biggest increase since 2009 and exceeds wage gains for “median earners” -- those making $20 an hour. Driving the increases are legally mandated minimum wage jumps, a tighter labor market requiring higher wages to attract help, and employer initiatives from McDonald’s, Walmart and a number of other companies seeking to upgrade and maintain their employees.
- First-time jobless claims totaled 261,000, a decline of 1,000 for the week ending August 20, according to the U.S. Department of Labor. The 4-week moving average was 264,000, a decline of 1,250.
- Personal income rose 0.4 percent in July, while personal consumption expenditures grew by 0.3 percent according to the Bureau of Economic Analysis.
- Orders for durable manufactured goods increased 4.4 percent in July according to the U.S. Census Bureau’s advance report. The increase was driven in large part by orders for transportation equipment, which jumped 10.5 percent. Without the volatile transportation segment, new orders were up 1.5 percent. Shipments for manufactured durable goods increased 0.2 percent, while unfilled orders fell 0.1 percent. New orders for capital goods – those goods used in the manufacture of other goods – increased 10.1 percent, which if it continues to grow is considered a very good sign for the economy.
- The final reading of the University of Michigan’s Index of Consumer Sentiment totaled 89.8 in August, down minimally from 90.0 in July. The Current Economic Conditions Index edged down from 109 in July to 107 in August, while the Index of Consumer Expectations rose slightly to 78.7 in August from 77.8 the previous month.
- The Gallup organization’s U.S. Economic Confidence Index stayed at minus 10 last week, holding on to the previous week’s gain and reversing low readings from June and July. The current conditions score averaged minus 2, while the economic outlook score was minus 17 -- both similar to the previous week’s score. Given a flow of good news last week about jobs, along with strong stock performance, Gallup had expected an improvement in confidence.
Foodservice News This Week
- Of the 25 largest restaurant chains, only Domino’s reported a same-store sales increase of 5.0 percent or more in their last fiscal quarter. And six of the largest chains - Applebee’s, Buffalo Wild Wings, Burger King, Chili’s, Chipotle and Taco Bell - reported negative comparable sales. Stock market analyst Mark Kalinkowski told Crain’s Chicago Business that the blame goes to the big spread between rapidly increasing restaurant menu prices and those of retail grocers. Others concur, including Wendy’s CEO, as we previously reported.
- The National Restaurant Association offers five reasons why the foodservice business will grow. Perhaps at least in part because of predictions of a restaurant recession, the NRA’s chief economist lists what he believes will keep restaurants humming. First, the labor market is healthy. Second, wages are rising. Third, households are in good financial shape. Fourth, research shows that there is pent-up demand as consumers would like to eat out more often. Fifth, turned cautious by the recession, consumers are extremely selective where they spend their hard earned dollars and many are opting to buy “experiences” as opposed to “things.” Time should tell if the NRA’s assessment is right.
- YUM! Brands trademarks food safety slogans. BurgerBusiness reported that YUM! has applied for registrations on “Yum! Food Safety Trust In Every Bite” and “Trust in Every Bite.” Scott Hume, editor and publisher of BurgerBusiness, notes that the slogans could be used with any YUM! brands – KFC, Pizza Hut and/or Taco Bell. Hume also speculates that the phrases might just be used internally for training purposes. Consumer concern about food safety has risen sharply, in large part due to Chipotle’s widely reported problems.
- Starbucks will open a new concept near Dayton, Ohio. The new “imperial’ design is a larger, freestanding unit of 2,200 square feet with an indoor/outdoor fireplace, outside seating and a drive thru window. The operation will offer an expanded food and drink menu, including beer and wine. A car wash will share the site with Starbucks.
- Domino’s will deliver pizza using drones in New Zealand. Domino’s has formed a partnership with a drone company named Flirtey and will test the system beginning with one store.
- Brits love burgers. Burger bar sales in the U.K. are estimated to be up 22 percent this year from 2011.
- Corporate Stirrings: There has been a published report that The Carlyle Group is one of two final bidders for McDonald’s Chinese properties. The hamburger giant is attempting to lower its risk by moving to a franchise model in China. Carlyle has been successful in the restaurant business before; it successfully made an investment in Dunkin’ Brands (a large franchisee) a few years ago.
- Carrols Restaurant Group has acquired seven Burger King restaurants north of Portland, Maine. Carrols is the largest Burger King franchisee in the U.S., adding 29 Burger King restaurant this year for a whopping total of 734.
- Growth Chains: Bloomin’ Brands is focusing on expanding in Latin America and plans on having 100 restaurants, including at least one Fleming’s in Brazil by the end of 2018. Uncle Maddio’s Pizza will open 3 restaurants in Knoxville, Tenn. Del Taco will open 3 restaurants in New Mexico. Dickey’s Barbeque Pit will open 3 locations in the Los Angeles area.
- Comparable Store Sales Reports: ONE Hospitality Group’s company-owned STK down 6.6 percent & company-owned and managed STK down 5.2 percent and Zoe’s Kitchen up 4.0 percent.
For details and same-store sales of other chains, check out the Green Sheet.