July Restaurant and Bar Sales Remain Positive

While July foodservice sales appear better than expected, there remains some uncertainty around the impact such economic factors as employment levels and food prices are having on the foodservice industry.

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Advance sales numbers from the U.S. Census Bureau for July place total retail sales up 0.8 percent, which easily exceeds the projections for this time period. Compared to retail sales in July last year, sales are up 4.1 percent. Restaurant and bar sales increased 0.7 percent compared to June and increased 7.3 percent compared to July of 2011. So far this year the Census Bureau says restaurants and bar sales are up 8.1 percent.

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The sales figures are adjusted for holidays, weekends and days in the month but not for inflation. Please bear in mind this study only collects data from restaurants and bars and is an advance number subject to revision.

Economic News This Week

  • First Time Jobless Claims fell by 6,000 to 361,000 for the week ending August 3. The less volatile four-week average for claims rose to 368,500. Most economists see this level of claims as no cause for alarm but also point to it as another reason not to expect significant improvement in the employment picture any time soon.
  • Consumer Economic Confidence fell for the second month in a row, according to the Gallup Poll. Economic confidence is up over 2011 but is back where it was earlier this year. Gallup also tells us that confidence is negative in every state but the degree of pessimism varies widely from minus 6 in Minnesota to minus 44 in West Virginia. The only place in the country where people are optimistic is the District of Columbia with a very upbeat +29. There is probably some reason for this but I have no idea what that could be.
  • Small Business Owners have turned pessimistic for the first time this year according a quarterly survey by Wells Fargo/Gallup. Among other findings was an increase in the number of small business people saying credit was more difficult to obtain.
  • Consumer Credit grew by $6.5 billion in June, which was less than the forecasted increase of $10 billion. Auto and student loans account for much of the increase while credit card debt fell $3.7 billion, which may indicate consumers remain nervous about the state of the economy.
  • Productivity increased 1.6 percent in the second quarter, according to the Labor Department's preliminary estimate. The department says this represents a 2.0 percent increase in output and +0.4 percent hours worked. Unit labor costs increased 1.7 percent.
  • The Producer Price Index rose 0.3 percent in July. The increase in food prices of 0.5 percent was somewhat offset by decreasing energy costs.

Foodservice News This Week

  • Foodservice sales are starting to soften, according to a number of indicators. First, McDonald's reported that U.S. comparable store sales declined 0.1 percent in July, the chain's worst performance in two and a half years. It was interesting to note that a number of observers seemed to feel that the faltering in McD's sales not just caused jitters for the burger giant or even for the restaurant business but as evidence that consumers were cutting back on all spending. Second, major foodservice supplier Sysco reported that the firm found market conditions "challenging." For their fourth fiscal quarter Sysco reported dollar sales were up 5.9 percent with case sales up 3.4 percent with both figures including sales from acquisitions. The company reported that share of market grew but net earnings dropped by 8 percent or $27 million dollars. Third, eyeballing changes in the Green Sheet shows that while the majority of restaurant chains continue to enjoy positive comparable store sales, the rate of increase in comps is falling. Finally, a number of reports have restaurants introducing limited time offers as well as deals and coupons to drive summer sales volume.
  • McDonald's same store decline may have another cause — not mutually exclusive — than a weak economy. Jane Wallace, the late editor of the Restaurants & Institutions magazine (which is also gone) used to say that the highly competitive burger business is a classic zero sum game. It is hard for all the major players to be up. Both Burger King and Wendy's reported increased same store sales. Plus, there are number of fast-growing better-burger businesses like Five Guys and Smashburger. So McDonald's weak July could, at least in part, have something to do with their competitors.
  • There was a lot of news this week about food prices being down due to the drought in the U.S. as well as other problems around the world. Some estimates of the corn crop have it down as much as 15 percent. This impacts everyone up and down the food chain, as poultry and beef rose. The UN reports that world food prices rose 6 percent in July. To try and stay ahead of increased commodity prices, some chains have signed contracts for 2013 already this summer.
  • Arcos Dorados, the huge McDonald's franchisee in Mexico, Central and South America reported 10.4 percent increase in sales coupled with a 15.5 percent decline in net profit.
  • Food trucks generated at least half a dozen news articles this week plus an editorial in the Wall Street Journal. It seems that cities are coming up with restrictive rules covering the trucks, at least in part due to complaints from brick and mortar restaurants.
  • Middleby Corporation reported a 10.2 percent increase in foodservice equipment sales for its most recent quarter. For recent financial data on equipment and supply companies, click here.
  • Growth Chains: Jamba Juice announced an agreement that will bring five new units to Connecticut over the next several years. Popeye's plans to double the number of their U.S. stores to approximately 3,200. Poncheros Mexican Grill plans on opening four franchised locations in the Portland, Ore., area with the first set to open next year. Pollo Tropical signed a franchise agreement for 10 stores in northern India. Pizza Patron plans to open 15 franchise restaurants in the San Diego area. Buffalo Wild Wings plans for 72 restaurants in the Middle East.
  • Comparable Store Sales Reports this past week were issued by Ark Restaurants (up 4.0 percent), Brinker (Chili's up 2.2 percent, Maggiano's up 1.9 percent), Carrols Restaurants (Burger King up 8.8 percent), Fiesta Restaurant Group (Pollo Tropical up 7.8 percent, Taco Cabana up 4.5 percent), McDonald's (down 0.1 percent), NPC International (up 5.1 percent), OSI Restaurant Partners (Outback up 2.3 percent, Carrabba's up 1.5 percent, Bonefish Grill up 2.1 percent and Flemming's up 6.8 percent), Qdoba (system wide sales up 2.1 percent, company owned up 3.3 percent, sales at franchised locations up 0.9 percent) Red Robin (up 0.8 percent), Tim Horton's (up 4.9 percent) and Wendy's (up 3.2 percent.)

For details and additional results, click here for the Green Sheet.

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