April Restaurant Sales Up, Technomic Spots Weakness in Full-Service; Minimum Wage Update and More

The Census Bureau reports restaurant sales were up in April. Technomic’s 500 Report shows weakness in the full service segment. Sysco, US Foods and the Performance Food Group all showed moderate sales advances. Minimum wage increases prove harmful to restaurants. McDonald’s will aid franchisees to upgrade. These stories and a whole lot more This Week in Foodservice.

The U.S. Census Bureau’s advance retail sales report for April contained good news and more good news. According to the Census Bureau, total retail sales for the month rose 0.4 percent. The Census Bureau also revised March sales from down 0.2 percent to up 0.1 percent.

Compared to April of 2016 retail sales were up 4.5 percent. For the first 4 months of this year total retail sales are up 3.5 percent.

The news was equally good for restaurants and drinking establishments. April sales were up 0.4 percent from March while the March sales were revised upward from minus 0.6 percent to + 0.2 percent.

Compared to April 2016, April restaurant sales are up 3.9 percent and up 3.2 percent for the first 4 months of 2017.

This good news does come with some cautions and caveats. First, the Census Bureau’s advance report is based on a limited sample and may be revised with the receipt of a broader sample. (Refer to the significant revision in March numbers as a typical example.) Second, the survey covers only restaurants and bars. Not included are hotels, resorts, clubs, employee feeding, schools, colleges, healthcare and military. Finally some, but not all, of the statistics are adjusted for seasonal variations, holidays, and weekends but not for menu price changes.

Economic News This Week

  • Small business owners remain optimistic according to the Wells Fargo/Gallup Small Business Index. Based on a survey that was conducted April 3-7, the index now stands at +95, down from a reading of 100 in February. But the index remains at its highest level since the Great Recession and sits well above the 2016 index scores. In April of last year the index was at +64. And, while small business owners report an increase in hiring over last year, 52 percent also said they have a difficult time getting good people to apply.
  • First-time initial jobless claims fell 2,000 for a reading of  236,000 for the week ending May 6. The 4-week moving average rose by 500 to a final reading of 243,500.
  • The Producer Price Index for final demand rose 0.5 percent, with the index for final demand goods up 0.5 percent and for final demand services up 0.4 percent. In the last 12 months, the index has risen 2.5 percent. The food index rose 0.9 percent for the month while the index for energy rose 0.8 percent. The “core index” for final demand goods (total goods index less foods and energy) was up 0.3 percent. The core index for the last 12 months was up 2.1 percent.
  • The Consumer Price Index rose 0.2 percent in April after declining 0.3 percent in March. In the last 12 months, the CPI is up 2.2 percent. The “core index,” which is the total index without volatile food and energy prices, was up 0.1 percent in April and up 1.9 percent in the last 12 months. Food prices were up 0.2 percent for April with both food at home and food away from home prices up 0.2 percent. In the last 12 months food at home prices are down 0.8 percent and food away from home prices are up 2.3 percent. Thus, eating out continues to become more expensive while eating at home become less expensive but recently the gap has narrowed somewhat.
  • First-time home buyers return to the market. After a decade of renting or staying with mom and dad, Millennials are buying starter homes and driving up real estate sales. This in itself is a very positive factor as first-time buyers usually are big buyers of new furniture, appliances and decor products, which drives sales in other industries, too.
  • What happened to wages? It has been frequently pointed out since the end the great recession, wage growth has been sluggish. Rising employment and good corporate profits are supposed to result in higher wages for workers, but that has not been the case. It is also true that productivity has not improved much and that company consolidation means more power to employers. What we may have is an “Econ Mystery,” writes The Wall Street Journal.
  • The University of Michigan Index of Consumer Sentiment remained high in May at 97.7, up slightly from 97.0 in April. The Current Economic Conditions Index was 112.7 — identical to the April reading. The Index of Consumer Expectations rose from 87.0 in April to 88.1. The partisan split between Democrats and Republicans remained in May, although the split modified somewhat to 55 index points from 65 points 3 months ago. The difference was due to a drop in the number of Democrats expecting a recession soon.

Foodservice News This Week

  • Technomic’s 500 Report shows full-service restaurant sales grew just 1.4 percent in 2016 with casual dining particularly weak. Full-service chains continue to face strong competition from regional chains and independents. Technomic reports Asian concepts, sports bars, and steakhouses did well last year.
  • Sysco reported U.S. foodservice operation sales were $9.2 billion in the company’s third fiscal quarter ending April 1. This is a 2.2 percent increase. Local case volume within U.S. broadline operations increased 3.5 percent while total U.S. case volume rose 1.8 percent. Operating income grew $25 million or 2.2 percent. For the total corporation, sales were up 12.7 percent to $13.5 billion. Earnings per share were $0.44 vs. $0.38 for the same period a year ago. Given the distribution giant’s penetration into the foodservice market, some look at their performance as a sort of index of industry performance.
  • US Foods reported sales of $5.8 billion for the quarter ending April 1st, an increase of 3.5 percent. Case sales volume increased 4.3 percent with independent case sales volume up 4.0 percent. Net income was $27 million, an increase of $14 million. Earnings per share were $0.12, up from $0.08 in the corresponding quarter last year.
  • Performance Food Group reported sales of $4.2 billion in the company’s third quarter. This is an 8.3 percent increase over the corresponding quarter last year. Total case volume rose 7.7 percent and net income increased 121 percent. Earnings per share were $0.21 up $0.094.
  • The minimum wage eats restaurants according to an opinion piece article The Wall Street Journal. In 2004, San Francisco set its own minimum wage theorizing that “tourists and techies” would pay the price to offset “the cost of the city’s generosity.” Last year the San Francisco Chronicle analyzed 20 years of menus and found that prices were up 52 percent at top restaurants, which is twice the rate of inflation. A recent study found that a $1.00 an hour increase in the minimum wage would lead to a 14 percent increase in “the likelihood of exit for a 3.5 star restaurant.”
  • McDonald’s offers to pay 55 percent of franchisees upgrades that include ordering kiosks, upgrading dessert counters, new uniforms, and table locating systems. However, there is a condition to the offer. McD’s will require that franchisees, who account for 67 percent of their units, must agree to the offer.
  • Chili’s will introduce a simplified menu in June. The new menu has 20 percent fewer items than the chain currently offers and there will be also be a reduction in “specials” and “limited time offers.” Chili’s goal is to speed service and reduce labor costs.
  • Rich Melman makes a succession plan. The co-founder of Lettuce Entertain You says he will step aside one day and turn the 127-unit company over to his children R.J., Molly and Jerrod.
  • Corporate Stirrings: The Rave Restaurant Group reported in its last fiscal quarter ending March 20, the chain opened 5 franchised Pie Five Pizza restaurants and closed 9 franchised Pie Five restaurants and closed 9 company-owned Pie Five restaurants. Pret A Manger may be considering an initial public stock offering. Private equity firm Bridgepoint Advisors owns the chain, which totals 444 locations worldwide (74 in the U.S.). Estimates show that the IPO could be worth $1.9 billion.
  • Growth Chains: Wingstop will open 100 restaurants in the UK in the next 12 years. Capriotti’s Sandwich Shop will open 3 locations in Minneapolis area. Blaze Fast Fired Pizza will open restaurants in New York City; Clovis, New Mexico; and Toledo, Ohio. Dunkin’ Donuts will open 3 locations plus a co-branded Dunkin’ Donuts and Baskin Robbins in Lake Charles, La. Captain D’s will open 5 restaurants in South Carolina. Fazoli’s has signed development agreements with 13 franchise groups for a total of 30 restaurants. Potbelly Sandwich Shops will open a minimum of 4 restaurants in Orange County, Calif. Dickey’s Barbeque Pit will open restaurants in Aventura and Hollywood, Fla.
  • Comparable Store Sales Reports: Arcos Dorados up 19.4 percent, Ark Restaurants down 3.0 percent, Carrols Restaurant Group down 0.6 percent, Kona Grill down 4.3 percent, Noodles & Company (system down 2.0 percent, company-owned down 2.5 percent, and franchised down 1.1 percent), Papa Murphy’s (domestic down 5.0 percent, company-owned down 9.9 percent, and franchised down 4.5 percent), Steak N Shake down 3.3 percent, and Wendy’s up 1.6 percent.

For details and same-store sales of other chains, Please Click Here for the Green Sheet.

 

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