News worthy of a second take:Restaurant sales continued to roll on in September according to the Commerce Department. Knapp-Track continues to show weak sales at casual dining chains. Amazon is going the brick-and-mortar route with the internet giant announcing they are moving into the c-store business and opening drive-in locations for the pickup of groceries ordered online. A study shows that noise can make food taste bad.
The U.S. Census Bureau’s advance retail sales estimate for September reported a 0.6 percent increase from August, which had a sales decline of 0.2 percent (revised). Retail sales less motor vehicle and parts rose 0.5 percent. Compared to September of last year, total retail sales are up 2.7 percent. Some economists believe that September sales show some confidence on the part of consumers.
Once again, restaurant and drinking place sales outpaced the total retail market, rising 0.8 percent from August and jumping up 6.1 percent vs. September 2015. The Census Bureau said in the first 9 months of the year restaurants and bars sales have risen 6.4 percent, making the segment one of the faster growing in the U.S.
A reasonable question would be how can the government’s numbers square up with various other reports and statements about a restaurant recession? The short answer is that they probably can’t. It would be necessary to do a side-by-side comparison to make sure that the same things are being measured. In the meantime, it should be pointed out that the government numbers are considered the “gold standard” when it comes to research.
Now for the cautions and limitations. The “advance” data above is based on a limited sample and the numbers are subject to revisions and are, in fact, frequently revised. (Example – the Census Bureau’s advance report had total retail sales down 0.3 percent. This month it was revised to down 0.2 percent.)
Add to that the fact that only restaurants and bars are surveyed. Roughly 30 percent to 40 percent of the foodservice market is not included. Missing from the research are hotels, resorts, clubs, employee feeding, schools, colleges & universities, healthcare and military feeding.
Finally, some of the numbers are adjusted for seasonal variances, holidays, and weekends but not for menu price changes.
Economic News This Week
- Initial jobless claims for the week ending Oct. 8 were identical to the previous week – 246,000. The less volatile 4-week moving average was 249,250, a decline of 3,500. This is the lowest the average has been since November 1973, despite having a much larger workforce.
- Job openings declined 388,000 in August to 5.4 million, according to the Bureau of Labor Statistics’ Job Openings and Labor Turnover (JOLT) study. Hires and separations for the month were essentially unchanged from July. The number of quits – those workers leaving their employer voluntarily – was also unchanged.
- Consumer borrowing increased 8.5 percent in August, per The U.S. Federal Reserve. Revolving credit, mainly credit card borrowing, rose 7.0 percent. Non-revolving credit, which includes car and truck loans, student loans, etc., increased 9.0 percent. This would appear to be a good sign for the economy as it means consumers are confident enough to take on additional debt.
- The National Association of Realtors Pending Home Sales Index was 108.5 in August, a decline of 2.4 percent. This is the index’s lowest reading since January and the third time the index has declined in the last four months. A spokesman for the National Association of Realtors attributes the decline to a lack of homes for sale.
- The Producer Price Index increased 0.3 percent in September. The Index for final demand goods was up 0.7 percent for the month. The “core index’’ for final demand goods – without food and energy prices – was up 0.3 percent. The Index for final demand services was up 0.1 percent. The change in final demand in the last 12 months was up a modest 0.7 percent.
- The University of Michigan’s Index of Consumer Sentiment fell in the preliminary reading for October, dropping to 87.9 from the September index of 91.2. This is the second lowest the index has been in two years. The Current Economic Conditions Index rose to 105.5 from 104.2 but the Index of Consumer Expectations tumbled from 82.7 in September to 76.6, which is the lowest level in 2 years. As in previous months, the drop was mostly among households with annual incomes less than $75,000. A spokesman for the university believes the concern is due to uncertainty regarding the upcoming election.
Foodservice News This Week
- Sales at casual dining restaurants continued to slide in September. Knapp-Track reports same-store sales declined 1.9 percent and customer counts were down 4.2 percent from September 2015 for the more than 50 restaurant chains participating in the study. These results would indicate an increase in check average of 2.3 percent. Mr. Knapp does not believe the spread between restaurant prices and grocery store prices has much effect on dining out. Rather, he feels the main problem is the “Allocation Nation Theory” which holds that consumers are highly selective with their dollars and spending on big ticket items (i.e., cars, electronics, etc.) at the expense of day-to-day items such as dining out. He also believes the uncertainty of the election is affecting consumers. However, Mr. Knapp thinks that business spending will pick up after the election. (Mr. Knapp’s info is courtesy of Bank of America Merrill Lynch.)
- Amazon will build convenience stores and pickup locations. The c-stores will sell perishable items such as produce, milk, meats, etc. The designated drive-in locations will bring online grocery orders to the customers’ cars. Amazon is developing license plate reading technology to cut wait times.
- Noise can make food taste bad. Recent research shows that a loud environment distracts restaurant patrons and actually makes the food taste worse. Further, when music is loud and fast we drink more and chew faster. According to the Zagat survey, noise represents the number one complaint of restaurant customers.
- Quick-service burger chains are holding down prices according to analysis by Scott Hume, publisher and editor of BurgerBusiness. Mr. Hume looked at the prices of 20 new burgers introduced this year and found the prices averaged $4.79, less than the $5 limit that some people place on acceptable fast-food sandwich prices. Mr. Hume believes this is smart business management given the recent report by the NPD Group showing a steep decline in lunch traffic at fast-casual concepts which NPD attributes to rising menu prices.
- Taco Bell shows off its new store design in four Orange County, Calif., locations. Two of the newly redesigned restaurants feature patios with fireplaces, communal dining tables made of reclaimed wood, exhibition kitchens, dome lighting, chalkboard menu specials, and midcentury modern lounge chairs. The other two operations offer cushioned booth seating, hacienda style light fixtures, and tables with outlets for recharging electronic devices. Taco Bell has two additional designs as well.
- Creepy clowns make McDonald’s more “thoughtful.” The sudden appearance of so-called creepy clowns in several states has McDonald’s cutting back on appearances by Ronald McDonald. Law enforcement officials are taking clown sightings seriously as numerous reports have surfaced of people dressed as clowns chasing people and attempting to lure children.
- Corporate Stirrings: The Red Lobster Seafood Co. received a $575 million “strategic investment” from the Thai Union Group, a global seafood supplier. Red Lobster’s current owner, Golden Gate Capital, will remain the majority owner and keep operational control of the chain. YUM Brands has announced significant changes in the chain’s strategic operation, including increasing the number of franchised units from what currently makes up 77 percent of the operation to at least 98 percent by the end of 2018.
- Growth Chains: Cowboy Chicken signed a franchise agreement for 30 restaurants in California, the largest contract the chain has written to date. Chicken Salad Chick will open 6 locations by the end of the year and as many as 35 more in 2017. The Halo Restaurant Group, owner and operator of 8 Local Taco restaurants in Nashville plans to add 50 restaurants of varying concepts in the next 5 years. Teriyaki Madness, which has opened 13 new restaurants so far in 2016, will open 5 more between now and the end of the year.
- Comparable Store Sales Reports: Del Frisco Restaurant Group (Del Frisco Grille down 1.4 percent, Double Eagle down 3.7 percent, & Sullivan’s down 3.2 percent).
For details and same-store sales of other restaurant chains, see the Green Sheet.