Through the first three months of the year, the foodservice industry has posted real sales gains, according to Food Institute data. While the overall trend is good, some operators, including McDonald's, continue to experience pockets of turbulence.

The Food Institute, using government sales and inflation statistics, calculates through March restaurants and drinking places are enjoying 3.77 percent real growth this year. The Food Institute adjusts sales data by allowing for menu price increases to arrive at this conclusion. The Food Institute reported that restaurants and bars have experienced real growth in each of the first three months of the year. Compared to their respective months in the previous year, March saw a 4.2 percent increase in real sales, February was up 1.4 percent and January climbed a hearty 5.7 percent.

Moreover, increases were not assisted by weak sales in 2012 as the institute states that for all of last year bars and restaurant sales increased 3.66 percent.

For comparison, the Institute calculated real grocery store sales grew 1.23 percent last year and were up 2.5 percent in the first 3 months of 2013.

Economic News This Week:

  • First time jobless claims for the week ending April 12 totaled 352,000, an increase of 4,000. The more consistent 4-week average totaled 361,250, an increase of 2,750. Once again the statistics show no increase in layoffs but not much improvement either.
  • Housing market data was mixed this week with the National Association of Home Builders confidence index falling to 42, a decline of 2 points. In explaining the decline, builders sited challenges with materials prices and sub-contractors. Housing Starts jumped in March with the Department of Commerce projecting a 7 percent monthly increase compared to February, resulting in an annualized rate of 1,040,000. This is the highest rate of housing starts since June 2008 but much less than the housing peak of 2.3 million in 2006. The increase was driven by multi family housing units. In contrast, March building permits unexpectedly fell 3.9 percent over February to an annual rate of 902,000. Finally, research from the Gallup Organization discovered that the American dream of owning a home lives on. In fact, 56 percent of homeowners surveyed plan to stay in their residences for the next 10 years and 23 percent of non-homeowners plan to buy a home in the next 10 years. Only 3 percent of homeowners expect to sell their home and rent in the next 10 years.
  • The Consumer Price Index fell 0.2 percent in March due to falling energy prices. Core prices, i.e., without energy and food prices, rose just 0.1 percent. Food prices were essentially flat with food at home down 0.1 percent and food away from home up 0.2 percent.
  • Industrial production as measured by the Federal Reserve rose 0.4 percent in March while February industrial production was revised upwards to 1.1 percent. The March increase was driven by utility output because of cold weather
  • The New York Federal Reserve’s Manufacturing Survey for April indicates continued growth in the region with a score of 3.1. However, this represents a decline from 9.24 in March and both new orders and shipments declined.
  • The Philadelphia Federal Reserve’s Business Activity survey found business activity to be steady in the region at +1.2 in April. The study results came in at +2.0 in March.
  • Leading economic indicators from the Conference Board fell 0.1 percent, with 5 of the 10 indicators declining in March. But, in the past 6 months the indicators were up 1.5 percent in total in the previous 6 months the indicators rose just 0.1 percent.
  • The Gallup Organization’s U.S. Economic Confidence Index declined last week coming in at -17. Gallup’s U.S. Satisfaction Index rose but just 30 percent of Americans are satisfied with the way things are going in the country.

Foodservice News This Week – McDonald’s Edition:

  • Friday McDonald’s announced its worldwide comparable store sales fell 1.0 percent in the first quarter. Overall sales rose 0.3 percent as did profits. McDonald’s management said that the burger giant had gained share of market in many parts of the world including the U.S, but comparable store sales in the U.S. were down 1.2 percent for the quarter. While the company did not release exact data for March, extrapolating from the January and February numbers, McDonald’s U.S. comps in March should have increased about 1.0 percent. Also, McDonald’s indicated that April sales are running soft.

An article in Advertising Age reported that McDonald’s franchisees are upset over aggressive discounting, which is not exactly fresh news. In part, Ad Age based their story on research done by Janney Montgomery Scott analyst Mark Kalinowski that found that McD’s franchisees are reporting they are beset by cold weather, the overall economy, gas prices, more competition, and…company ordered discounting. Mr. Kalinowski stresses that he interviewed just 25 franchisees representing 180 units or just a fraction of McDonald’s operators.

The survey found that there were concerns about the new McWrap offering which one operator termed “an operational nightmare.” Another franchisee said that McDonald’s corporate wanted them to offer McWrap for $1.00 as an introductory promotion but the McDonald’s national marketing franchise council shot down the idea. The Ad Age article quoted a source not connected to survey as stating that just the food cost of a McWrap is $1.70.

Foodservice News This Week:

  • The tragic Boston Marathon Bombing had a tie in with the restaurant business. A restaurant named Forum on Boyalston St. was crowed Monday with customers celebrating the marathon. The second bomb exploded directly in front of Forum. The Boston Globe, the Christian Science Monitor and others reported that the Forum staff was given high marks for keeping calm and offering aid to the bombing victims. Forum’s web site says that the restaurant is closed because it is considered a crime scene. And, the restaurant suffered extensive damage and they are unsure when they will reopen. On the reverse side, while all businesses including restaurants were shut down in Boston and surrounding communities while the hunt for the bombers went on, Dunkin’ Donuts was asked to keep a few of their locations open to provide food and beverages for law enforcement and related personnel.
  • Health inspections cost restaurants money, at least according to story in the N.Y. Post. Restaurant managers immediately stop cooking and serving when the New York city inspectors arrive since “…If there’s no food being prepared, there’s less chance of getting dinged with points.” The result is people with reservations are turned away while those people who are currently dining in the restaurant are told they can’t be served. One restaurant owner estimates that his volume falls 25 percent on the day he is inspected. The New York City Health Department denies their inspectors stop food preparation and service. The department further stated that an A rated operation receives only one inspection a year, an assertion at least two A rated restaurants dispute.
  • Red Lobster found that money saving measures started last year resulted in unhappy customers. Red Lobster had announced it would require servers to wait on four tables rather than three, was creating a new position called service assistants (all servers would begin in this position), and eliminating bus staff. The chain said that these policies seemed to work in tests but when they rolled them out nationally they were, as the company put it “a barrier to providing a great customer experience.” By next month Red Lobster servers will be back to handling three tables.
  • Growth Chains: New Miami Subs Grill has signed agreements that will bring 56 restaurants to the Middle East, Guyana and South America as an agreement for 58 locations in Hawaii. Smashburger has a franchise agreement that will open five locations in Panama. Dublin, Ohio-based City Barbeque has 20 restaurants but plans on doubling its unit count in the next 2 years.
  • Comparable Store Sales Reports: Chipotle Up 1.0 percent, Dave & Buster’s up 3.7 percent and McDonald’s down 1.2 percent.

For details and comparable store sales for other chains, Click Here for the Green Sheet.