This Week in Foodservice: The CIT Group Inc. Is Largely Positive on U.S. Restaurant Industry

Financial giant CIT turned its spotlight on restaurants and forecast steady improvement despite the slow recovery. The head of CIT's Restaurant Industry Practice says that lenders that had stepped away from restaurants during the downturn are returning to finance acquisitions, expansion or re-models but noted that smaller companies and franchisees of smaller chains continue to have difficulty getting financing.

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Even though a couple of chains (Dave & Buster's, CKE) have recently postponed initial public offerings, CIT's management thinks the IPO market for restaurant corporations will remain strong while mergers and acquisition activity will be steady.

CIT thinks that social media is a good tool for restaurants but says the jury's out on daily deal sites. CIT also cautioned that the employment picture needs to improve to see high restaurant sales growth.

Economic News This Week:

  • Employment and unemployment statistics were very much in the news this week as the Bureau of Labor Statistics reported the number of people employed jumped by 873,000 in September leading to a decline in unemployment from 8.1 percent to 7.8 percent. This sounds great but the Bureau also reported there were 114,000 new jobs created in September. The first thing to consider is the employment and unemployment numbers are determined by a survey of households and the jobs number by a survey of businesses and government organizations. Second, the household research involves a very small sample and is plus or minus 400,000. Third, there was a huge jump in employment of people who wanted full-time jobs but were working part time. And one writer noted a significant jump in employment among 20- to 24-year-olds. Usually this group's employment falls in September as college students quit summer jobs to return to school. Other sources this week include payroll processing firm ADP which said private employment increased 162,000 in September while the Gallup Poll said their study showed unemployment steady at 8.1 percent after seasonal adjustment. First time jobless claims rose to 363,000 for the week ending September 29. Finally, two facts we have to deal with: the U.S. needs about 125,000 to150,000 jobs a month just to stay even with population growth. Also keep in mind that the country has 4.5 million fewer jobs than it did in 2007.
  • Auto sales increased sharply in September with 14.9 million cars and light trucks sold, a four and half year high. Big sales gains were made by Toyota and Honda. Chrysler was up 12 percent while GM sales rose 1.5 percent and Ford was down fractionally.
  • Major retail general merchandise stores had very mixed results in September, with Thompson Reuters reporting same store sales up just 1.4 percent. Some of the big retailers reported positive comp sales but still missed estimates.
  • Consumer spending fell in September after rising in the last two months, according to a poll by the Gallup organization.
  • Gallup's Economic Confidence Poll was up sharply in September. And various consumer confidence studies showed improvement last month. This is in sharp contrast to the outlook of CEOs and CFOs, who seem to be more pessimistic, according to published reports by the Wall Street Journal.
  • The Institute for Supply Management's Non-Manufacturing (Services) Index rose to 55.1 in September from 53.3 in August. This is a very important indicator since roughly 80 percent of all jobs in the U.S. are in service businesses.
  • The National Retail Federation projects holiday sales will increase 4.1 percent. While still positive, the International Council of Shopping Centers projects a more modest 2.9 percent sales increase in the last two months of the year. Many economists believe spending at Christmas time is a good gauge of consumers' attitudes.

Foodservice News This Week

  • Restaurant hiring continues to grow. The much debated Bureau of Labor Statistics study reported restaurant employment rose by 15,700 in September, representing 15 percent of the 104,000 new private sector jobs created last month. And the mainstream media continues to notice the strength of foodservice hiring with Bloomberg, USA Today and the LA Times all running articles on the industry's employment picture. Some of the stories quoted an interview with the CEO of Darden, Clarence Otis, Jr. in which he stated that his firm will open 500 restaurants in the next five years translating into 50,000 additional jobs.
  • Darden's healthcare benefits also made the news with the Orlando Business Journal reporting the chain is "testing" cutting employees' hours to 28 a week in a select number of restaurants in an attempt to limit health insurance costs.
  • And, Darden has not been using Knapp-Track data in its sales reports. Knapp-Track is a sales monitoring system for about 60 casual restaurants. The Orlando Sentinel reported that a Darden spokesperson said that some restaurants are no longer counted — perhaps referring to Applebee's, which dropped out of Knapp-Track in March — so that the data is not as meaningful...Mr. Knapp responded by saying Darden has fallen behind the benchmark. The article also quoted Mr. Knapp as saying that other restaurants have joined his service and that Darden is still part of Knapp-Track and did better in August than their competitors.
  • The NPD Group says U.S. restaurant traffic rose in the second quarter. Visits to major chains increased in the U.S., China and Canada and were stable in Australia and Japan. Traffic in small chains and independents was up in Canada, China and France but declined in most of Europe, Japan, the UK and the U.S.
  • McDonald's is the seventh most valuable brand in the world according to a study by Omnicom's Best Global Brands. McD's was bumped down from 6th most valuable in 2010 and 2011 when Apple jumped to 2nd this year from 8th last year.
  • Zagat Says Wendy's is the number one fast food in its poll while Michelin chose to award its coveted stars to a record 896 restaurants in the five boroughs of New York.
  • Growth ChainsDunkin' Donuts has signed an agreement that will open three new restaurants in St. Louis by 2015. The Freddy's Frozen Custard & Steakburgers franchisee in Northern New Mexico plans on opening at least seven restaurants in the next five years. Krispy Kreme has an agreement calling for the development of 15 restaurants in Singapore over the next 5 years. Quizno's has an agreement to open 150 units in Brazil. Pizza Hut's delivery and carry out units (nicknamed Delco Lite) cost half or less than the typical full serve Pizza Hut to build and the company has opened 300 of them in the last 3 years. Pizza Hut believes that there is the potential for 2,000 of the smaller operations.
  • Comparable Store Sales this week are for Good Times Burgers (up 3.4 percent.)

For More Details and comp store sales for other chains, click here.

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