Laggards for a long time, midscale restaurants have become one of the industry’s hottest segments. Despite encouraging top line job numbers a deeper look shows a few nagging weaknesses. Foodservice led the way in hiring last month. Sysco’s case sales indicate the broadline distributor may increase market share. More than a dozen chains report their comparable same-store sales. These stories and a whole lot more This Week in Foodservice. 

They’re back! Midscale restaurants led the restaurant industry in growth by posting a 5.8 percent sales increase during the first quarter of 2015, according to Technomic, Inc. (Midscale restaurants are full-service operators with an $8 to $12 check average.) While Technomic notes midscale, or family style, restaurants saw sales grow 3.2 percent in 2014 vs. total industry growth of 4 percent, this segment continues to heavily invest in remodeling units and new technology.

For many years the midscale restaurant segment survived on its breakfast business and sales generated during late night hours. But now these operators heavily and successfully promote other dayparts. At the same time, breakfast and lunch only operations – such as First Watch – keep coming on strong with a “single shift” concept. Operators in this segment have been well-positioned to take advantage of the increase in travel resulting from the significant drop in gasoline prices since many of the units are located along major highways.

Not too far in the past, some industry “experts” were virtually writing off the midscale segment. They saw these restaurants as old and tired and totally out of touch with most consumers’ needs. They believed they were being whipsawed by the hot new casual restaurant on one side and by the fast feeders move into more expensive fare on the other.

This is probably a good a reason as any to be careful of the “experts” in the foodservice field.

Economic News This Week 

• ADP’s National Employment Report estimates the private sector added 185,000 new jobs in July. The payroll processing company said that companies with less than 50 employees added 59,000 new workers, employers with 50 to 499 employees added 62,000 new workers and companies with more than 500 employees added 64,000 new hires. This relatively even split is unusual for this study. 
• Initial jobless claims stayed in a relatively low range, hitting to 270,000, an increase of 3,000 for the week ending August 1. The 4-week moving average fell to 268,250, a decline of 6,500 claims. 
• The U.S. added 215,000 jobs in July, including 210,000 in the private sector. The Bureau of Labor Statistics also reports June jobs increased by 6,000 more than originally stated and May numbers were 8,000 higher. The unemployment rate was 5.3 percent, identical to the June number. Delving more deeply in the data shows that weakness still exists in the labor picture. The number of long-term unemployed remains high as does the number of part time workers who wish to be employed full time. Wages seem to almost stagnant with average hourly earnings up 2.1 percent over July of last year. Also troubling is the rate of labor force participation of 62.6 percent. This is the lowest rate since 1977. 
• The Institute for Supply Management’s Production Manufacturing Index hit 52.7 percent in July, a decline of 0.8 percent. Any number that exceeds 50 indicates expansion. 
• New orders for manufactured goods rose 1.8 percent according the Census Bureau’s full report for June. Shipments increased 0.5 percent while unfilled orders were virtually flat. New orders for manufactured durable goods were up 3.4 percent. Non-durable manufactured goods orders increased 0.4 percent
• Home prices increased 1.7 percent in June vs. May according to CoreLogic’s Home Price Index. June home prices were 6.5 percent compared to June 2014. But, nationwide home prices are 7.6 percent below their peak which occurred in April 2006. 

Foodservice News This Week

• The foodservice industry hired 29,300 workers in July making it the top industry in creating new jobs for the month. So far this year the Bureau of Labor Statistics said the industry has increased employment by 376,000 and now employs 11.1 million people.
• Sysco reported a 0.9 percent sales increase in the quarter ending June 27 and a 3 percent increase in gross profit. Sales from acquisitions increased sales by 0.4 percent while the impact of changes in foreign exchange rates decreased sales by 1.4 percent. Case volume from broadline operations and SYGMA grew 2.2 percent and approximately 1.9 percent excluding acquisitions.
• The big got bigger with the top 400 restaurant franchises increasing their units by 6.5 percent in 2014, according to Technomic. In contrast Technomic reports the number of units among the Technomic Top 500 Restaurant Chains increased 2.1 percent. These “chains within chains” have benefited from the trend of having restaurant corporations shedding their company-owned units.
• Chipotle’s Biggest Competitor Is…WHO? According to the investment firm Morgan Stanley, European fast-casual sandwich chain Pret A Manger has almost 100 percent of its 60 U.S. restaurants within a half-mile of a Chipotle location. Pret A Manger’s executives have stated they see “an enormous opportunity in the U.S.” and expansion plans are underway.
• UberEats’ food deliver system will soon land in Houston. The division of Uber Technologies offers prepared restaurant dishes from a set menu and is available in Los Angeles, Chicago, New York, Toronto and Barcelona, Spain. The company’s job listings seem to indicate UberEats plans to enter the Dallas, Phoenix, Atlanta and Miami markets.
• Food scares have caused Chinese families to abandon KFC and McDonald’s. While some young professionals have returned to the U.S. brands, Chinese families have taken their business to a plethora of domestically owned fast food operations. China is YUM’s number one market and McDonald’s third largest market.
• The Harris Poll EquiTrend, after evaluating restaurants brand equity on familiarity, quality and consideration, found In-N-Out Burger as the number one brand in the burger category. Chick-fil-A was the top chicken restaurant brand and Subway was the number one sandwich shop brand. Pizza Hut was first in the pizza category. Chipotle was first in the fast-casual Mexican category. Krispy Kreme finished in first place as the coffee and quick-serve brand of the year.
• Piada Italian Street Food is looking to expand into food courts and other non-traditional locations. The 22-unit chain will open a restaurant in the Mall of America and is looking at college locations as well.
• Corporate Stirrings: Tubby’s Submarines has purchased the “Just Baked” trademark, product recipes and distribution rights and will offer Just Baked cupcakes and other deserts in Tubby’s locations in the next few months. Grill Concepts, Inc. was the subject of a critical report issued by the hospitality workers’ union of Los Angeles and Orange counties. The company is the parent of the Daily Grill, The Grill on the Alley, and Public School. The press release does not explain what the union’s purpose was in issuing the report. Vitaligent LLC has been loaned $11 million by GE Capital Franchise Finance to the purchase 77 Jamba Juice units. Vitaligent is now the largest franchisee in the Jamba system.
• Growth Chains: Jamba Juice has a development agreement to open 25 units in Manhattan and Long Island, N.Y. Another Broken Egg Café signed a franchise agreement for 14 locations in the San Diego area over the next 5 years. Pizza Rev signed a multi-unit franchise agreement for Reno, Carson City and Sparks, Nev. Smashburger announced a partnership to bring its restaurant to four major U.S. airports. Tijuana Flats, with an investment from AUA Private Equity Partners, will continue to expand at a rate of at least 14 restaurants a year. The Stripes C-store chain will open 90 stores in Texas this year. Bojangles will open 59 to 63 new restaurants this year. Starbucks plans on opening 20 stores in Panama in the next 5 years. Carl’s Jr. has opened its first restaurant in India and sees the potential for 1,000 locations over time.
• Comparable Store Sales Reports: Ark Restaurants up 2.2 percent, Bloomin’ Brands (Blended up 2.2 percent, Outback up 4.0 percent, Carrabba’s up 0.9 percent, Bonefish Grill down 4.6 percent and Flemming’s up 3.2 percent), Bojangles up 7.9 percent, Brinker (Chili’s down 0.8 percent and Maggiano’s down 0.1 percent), Carrols Restaurant Group up 10.3 percent, Chuy’s up 3.2 percent, Famous Dave’s (company-owned down 9.2 percent and franchised down 3.3 percent), Habit Burger up 8.9 percent, Ignite Restaurant Group (Joe’s Crab Shack down 4.0 percent and Brick House Tavern up 2.8 percent), Jack In The Box (system up 7.3 percent, company-owned up 5.5 percent and franchised up 7.9 percent, Jamba Juice (system down 3.9 percent, company-owned down 5.9 percent and franchise down 2.6 percent), Noodles & Co. (system flat, company-owned up 0.1 percent and franchised down 0.5 percent), Papa John’s (North America up 5.5 percent, company-owned up 7.4 percent, and franchised up 4.8 percent), Potbelly )company owned up 4.9 percent), Qdoba (system up 7.7 percent, company-owned up 6.6 percent and franchised up 9.0 percent), Wendy’s (company-owned up 2.4 percent and franchised up 2.2 percent) and Wingstop up 9.0 percent.

For details and same-store sales of other chains, please click here for the Green Sheet.