Published on Tuesday, August 21, 2012
Written by Jerry Stiegler
This Week in Foodservice reviews the latest franchise failure data, economic news, and foodservice reports.
Franchising news website BlueMauMau.com produced a "lemon list" of franchise failures and it is not terribly surprising that most of the top ten were from the foodservice industry. However, some observers have criticized the methodology because the website based its list on data provided by the Small Business Administration and not from the total number of franchise failures. In other words, the failure rate by franchisees who obtained financing from other sources — i.e., direct from banks, GE Capital and similar firms, self financed, etc. — could be entirely different. So with that caveat, here is BlueMauMau's list of franchised foodservice operations with the highest failure rate and the percentage of those SBA backed loans that failed:
- Mr. Goodcents Subs (65 percent)
- Dream Dinners (60 percent)
- Tie: Carvel Ice Cream and Philly Connection (56 percent)
- Beef O'Brady's (54 percent)
- Taco Del Mar and Juice It Up (51 percent)
Economic News This Week
- The Labor Department reported July consumer prices were essentially flat, with the core index — without volatile food and energy prices — up just 0.1 percent. Food purchased away from home rose 0.2 percent and is up 3.0 percent this year through July.
- News from the manufacturing indices were disappointing this past week, with the New Federal Reserve's manufacturing survey taking a big tumble. Falling from +7.39 in July to a -5.9 this month. The Philadelphia Fed's survey improved from -12.9 in July but stayed in negative territory at -7.1.
- Initial jobless claims rose slightly to 366,000 for the week ending August 10. The four week average stood at 363,700. A number of economists would like to see first time jobless claims decline to less than 350,000.
- The housing market continues to show sparks of life. A very volatile economic indicator in its own right, July housing starts declined by 1.1 percent compared to June. The annualized number now stands at 746,000. In contrast, the number of building permits issued rose 6.8 percent to 812,000, the best since August 2008. Builder confidence also rose. The National Home Builders/Wells Fargo Index increased 2 points to 37, the highest since February 2007. The index has been as high as 72 (2005) and as low as 8 (2009). The economist at the National Home Builders Association says they are "still at a very fragile stage."
- The Conference Board's leading economic indicators increased 0.4 percent in July after declining by the same amount in June. Seven out of ten of the indicators were up.
- Consumer sentiment, as measured by the Reuters/University of Michigan preliminary index for August inched up to 73.6 this month from 72.3 in July. And, the Gallup Poll finds only 23 percent of Americans are satisfied with the way things are going, which is down from 28 percent in July.
Foodservice News This Week
- Foodservice industry sales will be flat for the next two years according to just released data from the NPD Group. This is a shift from NPD's forecast of a 1 percent increase in 2012 and 2013.
- Americans respect the restaurant industry, according to research from Gallup. In terms of a positive perception, restaurants scored a 59 percent — second only to the information technology segment, which had a 73 percent favorable rating, according to the poll. Only 10 percent of those surveyed had a negative perception of the restaurant industry. At the bottom of the list were the following industries: airlines, real estate, banking, the federal government, and the oil and gas industry.
- Shopping malls are looking to replace less successful retail tenants with sit down restaurants, according to CNBC. Restaurants are now in spaces far from the traditional food courts and even opening next to anchor tenants.
- Affluent diners are gravitating toward fast-casual restaurants, according to Technomic, Inc. While factors such as fresh foods, recommendations from friends, healthy menus and loyalty programs are important when the rich choose where to dine, a convenient location is the deciding factor.
- Domino's is doing a major upgrade of the restaurants in order to be more appealing to those patrons who prefer pick up service. Domino's says 30 percent of its customers now pick up their pizzas, up from 10 percent to 20 percent just a few years ago. The chain did not give any information on the number of units that will be upgraded or a time table for doing so.
- Growth Chains: Quaker Steak & Lube opened its 50th restaurant and will open 10 more by the end of this year. Cupcake chain Crumbs Bake Shops will open as many as 25 more stores this year depending on the availability of capital. The Cheesecake Factory has a franchise agreement to open restaurants in the Middle East, North Africa, Russia, Turkey and Europe with the first unit to open this month in Dubai. Subway will unveil its first vegetarian operation in India in September. Buffalo Wild Wings' Central Florida franchisee plans to have four restaurants in Puerto Rico, with the first to open next year.
- Comparable Sales Numbers this week include Popeye's (up 8.4 percent), Bob Evans (up 1.0 percent), COSI (down 0.5 percent), Country Style Cooking (down 3.8 percent) and Mimi's Café (down 3.3 percent).
For details and other chains' same store sales, click here for the Green Sheet. And click here for Equipment Supplier Financial Data.