Here are some takeaways for restaurants from the Consumer & Technology Conference. The latest estimate for 4th Quarter Gross Domestic Product improves but is still not encouraging. Technomic’s top 500 chains shows continued growth. CKE’s CEO says foodservice will continue to develop technology at the expense of entry-level workers. Retailers are increasing their penetration into the foodservice market. These stories and a whole lot more This Week In Foodservice.

The Consumer & Technology Conference, sponsored by Bank of America Merrill Lynch, was held earlier this month with 15 major restaurant chains participating. Here are some of the significant topics covered.

Restaurants are very much aware of the importance of mobile ordering and payment apps as they can be leveraged into loyalty programs and individual marketing efforts. But quick-service restaurants encounter problems with this technology in trying to mesh it with drive-thru orders. Some chains, including McDonald’s, have gone ahead and made the investment before all the operational hurdles were resolved.

Wage inflation is no longer a potential future problem. It’s here now. There is, however, a wide geographical disparity in wages, so companies with heavy store concentration in the Southern U.S. are facing less pressure. For the present, at least, declining food prices are somewhat offsetting wage inflation.

The return to positive same-store sales is sort of a good news, bad news situation for McDonald’s since the entire quick-service segment growing, but some of the growth is coming at the expense of competing restaurants. This, in turn, has led to increasing discounts as chains try and protect their share of market.

Finally, the softness in the Texas market cannot all be blamed on the weakness in the energy industry but also to overcapacity by the casual-dining segment, according to some of the conference attendees.

The information above is courtesy of Merrill Lynch.

Economic News This Week

• Gross domestic product grew at an annual rate of 1.4 percent in the 4th quarter of 2015, according to the Bureau of Economic Analysis 3rd estimate. This is an increase from the Bureau’s 2nd estimate of 1.0 percent growth. The revised increase is chiefly due to larger increase in personal consumption expenditures than originally reported. Many economists believe that 3.0 percent growth is a desirable rate.
• Personal income rose 0.2 percent in February which was above the consensus forecast of 0.1 percent. Personal spending rose 0.1 percent.
• Initial jobless claims rose just 6,000 to 265,000 for the week ending March 19. The 4-week moving average barely changed, rising 250 to 259,750. It appears that job losses are not a problem at this time.
• Existing home sales tumbled in February, dropping 7.1 percent from January. However, February sales were up 2.2 percent over the previous year. The National Association of Realtors blamed the decline chiefly on a lack of homes for sale and increasing prices. A major storm in the East and a slumping stock market may also have played a roll.
• New home sales rose 2.0 percent in February to a seasonally adjusted annual rate of 512,000. The U.S. Census Bureau also reported that February sales were down 6.1 percent from February last year.
• New orders for manufactured durable goods fell 2.8 percent, according to the U.S. Census Bureau’s advance report for February. Shipments of manufactured durable goods dropped 0.9 percent and unfilled order declined 0.3 percent. New orders for nondefense capital goods (those goods used to manufacture other goods) fell 7.5 percent. 

Foodservice News This Week

• Technomic’s 500 largest restaurant chains enjoyed sales growth of 4.9 percent in 2015, which was up from 4.2 percent in 2014. The Top 500 Chains had unit growth of 2.1 percent last year and now have a combined restaurant count of over 223,000. Of special interest was Starbucks with sales growth of 12.8 percent and Taco Bell, which jumped over Burger King and Wendy’s to become number 4 in sales. And, as has been true for the last several years, fast-casual chains led all segments in sales growth with a rate of 11.4 percent.
• Restaurant automation is “on the menu” according to a recent op-ed piece in the Wall Street Journal by CKE Restaurant CEO Andy Pudzer. The number one reason is that consumers desire it and the second is, while technology has gotten less expensive, government mandated wage increases are making employees more expensive. Pudzer notes that in San Francisco, which has one of the highest labor costs in the U.S., median family income has increased, yet so has the number of people living in poverty. He contends that technically proficient people earn more while those who are not are being priced out of entry-level jobs.
• Consumers have increased their purchase of prepared meals from retailers. Technomic, Inc. reports that 84 percent of those surveyed purchased a prepared meal from a retailer at least once a month vs. 79 percent in 2012. The report said that many of these purchases are at the expense of fast food operators. The increase was driven in large part by younger people, i.e., age 18 to 30.
• McDonald’s struggles with its new value menu. The McPick 2 promotion, which allowed customers to choose 2 of 4 items, was a moderate success, but franchisees preferred its replacement program: the 2 for $5 promotion, which could bring the check to $7 or $8 with a drink and fries. Now some franchisees are pushing for regional promotions, believing that deals that work well in one area won’t in another. But that strategy could undercut McDonald’s powerful national advertising clout.
• Wawa Inc. announced the company is going on a hiring spree and is looking to fill 5,000 jobs in the next 3 months. The c-store chain operates 700 stores and currently employs 26,000.
• Terrorist attacks in Brussels resulted in U.S.-based chain closures. Starbucks closed all 15 of their locations in the country while Domino’s closed all their stores in Brussels. McDonald’s reported closing just one of their units. Pizza Hut, with 100 operations in Belgium, did not report if any restaurants were closed.
• The UK foodservice market will have slower growth this year. British researcher Horizons thinks growth will be 1.8 percent vs. 2.0 percent in 2015, according to Burger Business. The forecast states some full-service operations are experiencing declining same-store sales. In the past these chains could drive sales by new store openings but skyrocketing rents and few top sites limits this strategy.
• A Sonic restaurant in Virginia added a dining room, the first in the state to do so. The move seems to have been the result of competitors opening nearby. As the drive-in chain has expanded northward, more new units have dine-in facilities.
• Corporate Stirrings: YUM Brands is reportedly holding talks with potential investors to sell 19.9 percent of its China business. It is unclear how this move will affect YUM’s spin-off of the China operation scheduled for later this year, but by keeping the sale under 20 percent the chain may avoid a tax liability. Red Robin Gourmet Burgers, Inc. announced that it has completed the purchase of 13 restaurants in Texas from a half a dozen franchisees. Terms were not disclosed in the press release. Country Style Cooking Restaurant Chain Co.has called a stockholders meeting for April 20 to vote on a merger plan, which will result in the firm becoming a privately held company.
• Growth Chains:Schoney’s plans to open hundreds of restaurants via franchising in the next 10 years. Brix Wood Fired Pizza opened restaurants in Virginia, North Carolina and Georgia in a 7-week time frame. Love’s Travel Stops opened 7 locations in 6 states in March including a Carl’s Jr., a Hardee’s, a Subway, and a Dunkin’ Donuts. Marco’s Pizza plans to open 127 stores in the next 4 years. Blaze Fast Fire’d Pizza is planning to have 210 locations by March 2017 and intends to be the fifth largest pizza chain in 5 years. Donato’s Pizza has signed a franchise agreement for 3 restaurants in Erie, Pa. Fazoli’s plans to open 12 restaurants this year. Russo’s New York Pizzeria has opened a location in Dubai and plans to have 28 stores in the Middle East. 
• Comparable Store Sales Reports: Arcos Dorados up 12.0 percent, BJ’s Restaurant up 0.7 percent, CEC Entertainment up 1.3 percent, COSI up 0.7 percent, Cracker Barrel up 0.6 percent, Del Frisco (Del Frisco Grille down 4.5 percent, Double Eagle down 1.6 percent, and Sullivan’s down 1.8 percent), Diversified Restaurant Holdings, (Buffalo Wild Wings up 0.8 percent and Bagger Dave’s down 7.8 percent), Famous Dave’s (company-owned down 10.6 percent and Franchised down 5.2 percent), and Krispy Kreme up 1.3 percent.

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