Casual dining sales remained soft in August. Foodservice grew in every market outside the U.S. in the second quarter. Restaurants find changes have to be made to capitalize on takeout and delivery business. Taco Bell will open 300 of their Cantina concepts in the U.S. Electric powered car manufacturer Tesla may enter the C-store business. These stories and a whole lot more This Week in Foodservice.

Kapp-Track reported casual dining chains’ sales were still hurting in August. Same-store sales at the more than 50 casual dining chains in Malcolm Knapp’s database dropped 2.5 percent. These restaurant chains also report a 5.1 percent decline in traffic and a  2.6 percent increase in check average.

Each week in August showed declining comparable store sales, but Knapp attributes the sharper decline in the fourth week to Hurricane Harvey’s impact on casual dining sales in Texas.

Merrill Lynch raised a question regarding a recovery in casual dining sales. At least some analysts were expecting to see a sales improvement in the  second half of 2017 but based on July and August results, this clearly isn’t happening. The report notes that many companies continue to take 2 percent to 3 percent menu price increases despite a moderating commodity prices. And, unit growth continues to come at a rate of 1.5 percent to-2.0 percent per annum while the U.S. population increases 0.7 percent to 0.8 percent each year. This is known as the “too many seats, not enough fannies” theory.

Finally, Mr. Knapp reported his fast-casual same store index declined 5.0 percent. Transactions were down 6.4 percent with check averages up 0.5 percent to 1.5 percent. Unit growth for fast-casual operators is  6.0 percent more year over year vs. 11 percent in 2016.

Mr. Knapp’s information is courtesy of Bank of America Merrill Lynch.

Economic News This Week

• Initial jobless claims fell by 23,000 to a level of 259,000 for the week ending Sept. 16. This followed a drop of 14,000 the previous week and a huge bounce up of 62,000 the week before that. The Department of Labor has not provided an explanation for the somewhat erratic variance. The 4-week moving average declined by 6,000 to a level of 269,750.
• Housing starts in August fell 0.8 percent from July but increased 1.4 percent from August 2106. Single family housing starts were up 1.6 percent from July. The number of building permits issued rose 5.7 percent in August compared to July. Single family permits issued declined 1.5 percent from August 2016.
• Existing home sales declined 1.7 in August compared to July for an annually adjusted rate of 5.35 million. August sales were up 0.2 percent from August 2016. A spokesman for the National Association of Realtors said that the primary cause for the weak sales figures is the lack of inventory of homes to sell. Further, the lack of homes on the market results in higher prices, which in turn reduces sales. Hurricane Harvey reduced sales in the Houston market and Hurricane Irma will have a similar impact on the Florida market. However, the Realtors Association believes that most of the sales lost this year will move to 2018.
• The Philadelphia Federal Reserve’s Manufacturing Business Outlook Survey improved in September. The reading is 23.8, up from 18.9 in August. (Any reading exceeding zero indicates increasing activity.) The New Orders Index rose 9.1 points for a final reading of 29.5. The Shipments Index increased 8.4 points to a level of 37.8, while the unfilled orders index rose 2.5 points to a final level of 17.0.
• The National Federation of Independent Business Optimism Index stayed near a record high in August. The Index rose 0.1 percent to a reading of 105.3. Of the 10 components of the Index, 5 rose and 5 fell but strong capital spending, high sales expectations and optimism regarding expansion offset negative factors
• The International Council of Shopping Centers Predicts increased retail sales during the Christmas season. The ICSC’s consumer survey forecasts 3.8 percent year-over-year growth for the 2017 holiday season with 96 percent of shoppers planning both in-store and online shopping. 

Foodservice News This Week

• Foodservice grew in every market outside the U.S. in the second quarter of this year. The NPD Group reports that nearly all the growth came from the quick-service segment. This was driven by advantageous pricing, aggressive unit growth, and heavy advertising. NPD added that delivery service, along with mobile ordering and payment, also played a role in expansion.
• What does a restaurant need to change to accommodate takeout and delivery business? Maybe everything. From adding new software to remodeling the kitchen (more holding ovens, etc.) to retraining staff to buying new packaging, restaurants are finding they have to make many adjustments to increase their delivery and takeout business. Some operators even change their menus after discovering certain menu items don’t “travel well.”
• Taco Bell plans to open 300 of its cantina-themed restaurants in major U.S. urban areas. Cantinas target Millennials and will serve alcoholic beverages. The units also have local art work, an open kitchen and digital menus, but no drive-up windows. Taco Bell says they will have 50 of the cantina-style operations in New York City.
• Electric vehicle manufacturer Tesla may open c-stores. Tesla plans a network of quick charging stations to service their battery-operated cars. Called Supercharger, Tesla is exploring building c-stores on the property to reach Tesla drivers while they spend the 15 to 20 minutes recharging their vehicles.
• Chick-fil-A supersizes for New York City. The Atlanta-based chicken chain will open a 12,000-square-foot, 5-story operation featuring large windows, a skylight and 3 dining rooms. There will also be a roof deck with a view of the Freedom Tower. The restaurant will open sometime in the winter of 2018-2019 and will have a menu consistent with other Chick-fil-A restaurants.
• Shake Shack will open a restaurant with a test kitchen. Located in New York City’s West Village, the three-level operation will provide working space to collaborate with well-known chefs.
• Foodservice operators in storm damaged areas step up to help. Restauranteurs are providing food for search and rescue teams, the elderly, and those in storm shelters. In at least one case, ingredients were supplied by foodservice distributors. Some restaurants are running fundraisers to help hard-hit residents.
• Hurricane Irma inflicted “unprecedented” damage to Florida’s fruit and vegetable inventory. Crops were beaten down, greenhouses flattened, trees toppled and pastures flooded. Oranges, avocados, eggplants, tomatoes, and bell peppers were especially hard hit. Foodservice operators can expect to see higher prices and short supplies of these and other crops.
• The Fiesta Restaurant Group reports on the effects of the hurricanes. The chain said Taco Cabana lost 319 operating days in the Houston area but of their 43 locations, all but one restaurant had re-opened as of Sept. 15. Pollo Tropical units seem to have escaped serious damage while 119 restaurants of 149 in the Florida and Atlanta area were open by Sept. 15. The company indicated that it maintains “comprehensive insurance coverage including property, flood and business interruption.” However, Fiesta Restaurant Group  also stated that it had permanently closed 10 company-owned Pollo Tropical units in south Texas and San Antonio, at least in part, because effects of Hurricane Harvey.
• Corporate stirrings: Jamba Inc. continues to encounter problems maintaining its listing on the Nasdaq exchange. The company has failed to file the required forms with the Securities & Exchange Commission since last year. Jamba previously stated its failure was due to changes in the company’s business model, leadership and key personnel, as well as the relocation of the firm’s headquarters. The company announced earlier that it intended to file the reports by Sept. 18 but failed to do so. Jamba now states the company has requested a hearing with Nasdaq, which will delay the delisting of their stock for 15 days. Restaurant Brands International has accused the board of the Great White North Franchise Association of leaking confidential information to the press. The franchise group is made up of dissatisfied Tim Horton franchisees. The president of the group has denied the charge.
• Growth Chains: Del Taco will open five locations in the Atlanta area in the next six years. Starbucks may expand to 200 stores in Italy in the next 6 years. YUM! Brands will double the number of Pizza Hut restaurants in India to 700 in the next 5 years. Marble Slab Creamery has opened their first location in Bangladesh with plans to open additional stores throughout the country.
• Comparable Store Sales Reports: Rave Restaurant Group (Pie Five Pizza down 16.2 percent and Pizza Inn up 0.2 percent.)

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