How Does McD’s Double Burger King’s Sales, CKE CEO Talks New Overtime Rules and Much More

This week we analyze the National Restaurant Association’s Restaurant Performance Index, look at the GDP results, provide a response by a restaurant industry leader to the president’s call for new rules on overtime and much more.

February was not a great month for restaurants according to the National Restaurant Association. The association’s Restaurant Performance Index fell to 100.5, a decline of 0.2.

One troubling aspect of the report was a net decline in customer traffic with 35 percent of operators reporting an increase in traffic over February 2012 while 43 percent reported their traffic dropped. Also depressing was restaurants’ capital spending. The study showed 44 percent of those surveyed invested in equipment, expansion and remodeling in February, the first time in the past 10 months that less than half of the survey’s respondents made a capital expenditure.

The outlook for future capital investments was somewhat more positive with 58 percent of operators planning on making expenditures for equipment, expansion and/or remodeling in the next 6 months.

While the RPI remains above 100 indicating some industry growth, no one can be pleased with a Current Situation Index of 99.3 and dropping.

Economic News This Week

  • Real Gross Domestic Product for the fourth quarter of 2013 grew at an annual rate of 2.6 percent, 0.2 percent more than the U.S. Department of Commerce’s most recent estimate. However, this third and final estimate was below the predictions of many economists and below the historical range of 3 percent to 3.25 percent.
  • First-time jobless claims for the week ending March 22 fell to 311,000, a decline of 9,000. This represents a four-month low and near the average weekly claims for the years before the recession. The less erratic 4-week moving average fell to 317,750, a decline of 9,750. While it appears layoffs are declining that does not automatically translate into increased employment.
  • Durable goods orders increased by 2.2 percent in February led by a 6.9 percent increase from the transportation sector. Both shipments and unfilled orders for manufactured durable goods also rose in February.
  • The Chicago Business Barometer hit 55.9 in March, a decline of 3.9 points. New orders and order backlogs grew at a slower rate than in February. Any number in excess of 50 shows business expanding in the Chicago area.
  • February sales of new single-family homes fell 3.3 percent to a seasonally adjusted annual rate of 440,000, according to the U.S. Census Bureau.
  • For the eighth straight month, the National Association of Realtors’ Pending Home Sales Index declined in February by posting a score of 93.9, a 0.8 percent decline from January. In February 2013, the index hit 104.9. The association’s head economist believes traffic was negatively affected by the weather and some transactions will close by spring.
  • Both personal income and personal spending rose by 0.3 percent in February compared to January. The increase in personal income was the largest in five months according to the U.S. Commerce Department. The bad news is that the department’s Bureau of Economic Analysis revised January personal spending down to a positive 0.2 percent from 0.4 percent.
  • There is no consensus about consumers’ attitudes on the economy. The Conference Board’s Consumer Confidence Index rose to 82.3 from 78.3 in February. The Conference Board’s Present Situation Index fell slightly while the Expectations Index jumped seven points. In contrast, the March Reuters/University of Michigan Consumer Sentiment Index came in at 80, down from 81.6 in February. The study showed consumers were slightly more pleased with current economic conditions in March than in February (95.7 vs.95.5) but the gauge of consumer expectations dropped to 70 last month after a reading of 72.7 in February. The Gallup Organization’s Economic Confidence Index stayed at negative 18 for the past 2 weeks and has been generally consistent since the beginning of the year. With one index up, one index down, and one index flat the only thing to do is look at historical data, which tells us that consumers remain very cautious.

Foodservice News This Week

  • One foodservice executive responded to the administration’s plan to revise overtime work rules. In an op-ed piece in the March 25 Wall Street Journal, Andy Puzder, CEO of CKE Restaurants, said changes to overtime work rules will hurt the entry-level managers by turning them into hourly employees. Widely known for being blunt, Puzder said the president’s claim that some employees exempt from the overtime rule mostly do physical work like stocking shelves is “at best, misleading.” He went on to say that overtime pay will end up reducing managers’ salaries or bonuses.
  • Recession-fueled eating at home is leveling off, according to the NPD Group. About 80 percent of meals were prepared at home in 2013, which was about the same as 2012. NPD said 77.4 percent of meals were prepared in the home in 2008, the beginning of the recession.
  • How does the average McDonald’s unit have twice the sales volume of the average Burger King?Bloomberg Businessweek says there are 4 reasons why the average McD’s has sales of $2.6 million vs. BK’s average of $1.4 million. First McDonald’s draws more customers during breakfast and off-peak hours. Second, the power of the Happy Meal draws more kids and their parents. Third, McDonald’s has an edge on efficiency by handling more drive-thru customers. Finally, Big Mac spends more on marketing. In 2012 McDonald’s ad budget was 10 times that of Burger King.
  • C-store chain The Pantry is catching up in foodservice. The 1,537-unit chain said that foodservice makes up 11 percent of its sales and the national average for c-stores foodservice sales is 17 percent. The Pantry’s CEO said the chain’s goal is to close that gap.
  • Corporate Stirrings: Yum! Brands franchisee Apex Restaurant Management will acquire Morgan’s Foods, Inc., owner of 68 KFC, Taco Bell, and Pizza Hut Restaurants. Zoe’s Kitchen has taken the initial steps for an initial public offering of its common stock.
  • Starbucks will expand its alcohol and lite bites menu to thousands of stores over several years but does not see it working in every Starbucks location.
  • Hooters debuted a new restaurant design in San Marcos, Calif. The new bar centric concept features an expansive patio, and offers a massive state-of-the-art video wall. Hooters expects to use the design when opening new locations and remodeling existing ones.
  • Growth Chains: Smashburger has partnerships to open restaurants at airports in Phoenix, Dallas and Washington, D.C. Dairy Queen will open its initial New York City location in Manhattan this spring and it will be the chain’s first two-story unit in the country. The Fiesta Restaurant Group will open as many 22 Pollo Tropical locations this year while upgrading most of the 170 existing Taco Cabana locations. Domino’s Pizza plans on having 600 stores in Turkey by 2016. Fresh to Order has signed an agreement with two franchisees for a total of eight stores in the Charlotte area. Sarpino’s Pizza plans to grow to 350 locations from its current 46 units in the next 5 years. Huddle House signed 8 new franchisees who will open 15 new restaurants.
  • Comparable Store Sales Reports: Captain D’s (up 12.0 percent) and Sonic Drive Ins (system up 1.4 percent, company-owned up 1.3 percent and franchised up 1.5 percent).

For details and Same Store Sales for other chains, please click here for the Green Sheet. 

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