The Knapp-Track Report shows same-store sales increased 0.2 percent in March for the 50+ casual dining chains that participate in the study. The first 2 weeks in April show same-store sales at casual chains declined between zero and 1.0 percent while traffic dropped about 3.0 percent. Knapp also feels comp sales will be negative for the entire month. As for the rest the year, he is cautious but feels sales could range anywhere from a 1.0 percent decline to a 1.0 percent increase on average.
Taking a slightly different look at his data, last year Knapp eliminated 25 percent of the worst-performing chains and found the rest of the market was in the positive range. This indicates there are some winners in the casual dining sector.
Knapp believes there are “high levels of political uncertainty.” Because of the failure to improve healthcare, many Americans, particularly older ones, are very nervous. As for any benefit from tax reform the earliest we can see this is the end of next year but more likely it may come in 2018. And, the reforms will have to be substantial if the U.S. economy is going to improve. He also expressed concern that the crackdown on illegal aliens will have a negative impact on back-of-the-house employees.
The “allocation nation” theory continues to receive support from Mr. Knapp. He notes, however, that auto sales are softening, which might mean that consumers will have more money to spend eating out.
Finally, Knapp was quite emphatic that consumers want to eat out more often but many will not do so for an “OK experience.” He thinks operators must deliver really good food and service to be successful. Without mentioning any names, he said that some CEOs seem willing to ignore losing sales and market share and are just harvesting cash.
Malcolm Knapp’s data and views are courtesy of Bank of America Merrill Lynch.
Economic News This Week
- Initial-jobless claims totaled 244,000 for the week of April 15, an increase of 10,000. The 4-week moving average was 243,000, an indication that there is little volatility in the number of claims filed.
- The Empire State Manufacturing Survey Index retreated sharply in April. The New York Federal Reserve reported business continued to grow but at a significantly slower pace with the index, totaling 5.2 percent. This is down from a multiyear high of 16.4 in March. (Any number that exceeds zero indicates expansion.) The New Orders Index plunged from 21.3 in March to 7.0. The Shipments Index rose from 11.3 in March to 13.7 in April. The Unfilled Orders Index slid but stayed in the positive range, declining by 18 points to a very respectable 12.4.
- The Philadelphia Manufacturing Business Outlook Survey indicated that manufacturing activity continued to increase in April but at a slower pace than in the first three months of this year. The index fell to 22.0 this month from 32.8 in March. The indexes for new orders and shipments remained positive but fell from their March readings. However, the current employment index improved slightly.
- Industrial Production increased 0.5 percent in March after growing by 0.1 percent in February. The increase was driven by a jump of 8.6 percent in output of utilities, which was the largest increase in the history of the index. The demand for heating returned to normal levels in March after being suppressed by unusually warm weather in February. Manufacturing output fell 0.4 percent in March primarily due to a large decline in motor vehicle and parts production. Mining production (which includes petroleum) rose 0.1 percent. Capacity Utilization increased 0.4 percent to 76.1 percent in March, a rate which is 3.8 percentage points below the long run (1972-2016) average.
- March housing starts were at a seasonally adjusted annual rate of 1,215,000. This is a decline of 6.8 percent from February but is 9.2 percent increase compared to March 2016. Single family housing starts were down 6.2 percent from February. Building permits issued were at a seasonally adjusted annual rate of 1,260,000. This is an increase of 3.6 percent over February and a 17 percent increase over March of last year. Single family building permits were down 6.2 percent from February.
- The Leading Economic Index increased by 0.4 percent In March following a 0.5 percent increase in February and a 0.6 percent increase in January. The index now stands at 126.7 with 2010 being the base of 100. The Conference Board reported the gains among the indicators were “very widespread” with 8 of the 10 indicators rising. The index shows a trend toward continued economic growth. The spokesman for the board said growth may accelerate later this year if consumer spending and business investment pick up.
Foodservice News This Week
- IKEA placed small restaurants in the company’s stores as a gimmick to keep shoppers there longer with the hope of selling more home goods and furniture. Several years ago the company was somewhat surprised to find its food business generates $1.5 billion in revenues. IKEA began to put more marketing muscle behind its restaurants and now food represents one of the company’s fastest growing segments. The furniture giant is now considering opening freestanding restaurants in city centers.
- McDonald’s appears to want more control and many franchisees are not happy. McD’s wants franchisees to pay 50 percent of restaurant upgrades, up from the usual 40 percent. The cost of the changes runs from $150,000 to $700,000 per location. Further, corporate wants franchisees to raise their allocation to McDonald’s national advertising fund to 2.0 percent from the current 1.6 percent. The franchisees are also expected to begin offering delivery service.
- Dean & Deluca will introduce a new fast-food concept in New York City. The gourmet food retailer tested the concept, known as Stage, at Design Miami. The company will likely change the name, however, for the New York operation. The 3,432-square-foot space will focus on “food as theater” with a standalone, rectangular mirrored counter that will allow customers to approach from any angle and interact with the staff. Customers can place an order, watch as it’s prepared, then pick it up.
- Chipotle Mexican Grill has increased menu prices by about 5.0 percent in approximately a fifth of the company’s locations. The chain attributes the move to increasing ingredient and labor costs.
- A work sharing company now places freelancers and remote workers in restaurants during off hours. Workers get free WiFi and coffee and can also hold meetings and/or make presentations for $95 a month. Restaurants attract new customers and generate revenue at a time they are empty.
- Product failures include menu items according to news and opinion website 24/7 Wall St.’s list of the top 50 product flops of all time. Making the list that included New Coke and the Edsel, was Burger King’s Satisfries at No.4. Satisfries cost more and, as has been noted before, most fast-food customers aren’t interested in eating healthy. Coming it at No. 30 is McDonald’s Arch Deluxe, an attempt at selling an “adult hamburger.”
- Corporate Stirrings: A survey of McDonald’s franchisees by Mark Kalinowski of Nomura indicates same-store sales could be up 0.8 percent despite going against a +5.4 percent increase in comparable store sales last year. Kalinowski now forecasts second quarter comp sales growth to be +2.2 percent. It is important to note that the survey included just 31 franchisees with a total of 243 stores. Subway closed 359 restaurants last year and had 26,744 stores in the U.S. at the end of 2016. The chain said U.S. sales fell by 1.7 percent last year but Subway will continue to look to add units in both traditional and nontraditional locations. The Fiesta Restaurant Group announced the closing of all Pollo Tropical restaurants in Dallas, Ft. Worth, Austin and Nashville. Up to five of these restaurants may be converted to Taco Cabana restaurants. The company will continue to operate 13 Pollo Loco restaurants in Atlanta and 6 in South Texas. Fiesta also provided a list of initiatives to drive “long-term value creation.”
- Growth Chains: Starbucks is looking for space in Chicago for the company’s upscale Roastery concept as well as in Milan, New York City, Shanghai, and Tokyo. BurgerFi plans to open approximately 20 restaurants this year. PJ’s Coffee Of New Orleans will open 10 locations in Houston in the next 6 years. Garbanzo Mediterranean Fresh will open up to 10 locations in St. Louis. Dunkin’ Donuts will open 5 restaurants in Georgia and Florida. Texas Chicken will open a store in Bahrain and expects to have a total of 5 units there by 2020. Dickey’s Barbecue Pit plans to open 23 locations in California. Capriotti’s Sandwich Shop will open three restaurants in Nashville, Tenn., in the next two years. Shipley-Do-Nut will open a location in Denver with plans for 58 stores in Colorado.
- Comparable Store Sales Reports: Fiesta Restaurant Group (Pollo Tropical down 6.7 percent and Taco Cabana down 4.5 percent), and Luby’s (all concepts down 2.9 percent, Luby’s Cafeteria down 3.5 percent, Fuddrucker’s down 1.4 percent, Cheeseburger in Paradise down 7.6 percent and combined units down 4.3 percent.)
For details and same-store sales of other chains, Please Click Here for the Green Sheet.