Merrill Lynch says over expansion is hurting restaurants. Restaurant employment fell dramatically in September. Premium products are driving up coffeehouse sales. Fast-casual restaurant sales growth is slowing in Canada. These stories and more This Week in Foodservice.

Bank of America Merrill Lynch recently pointed out that U.S. restaurant unit growth is exceeding the population increase. The number of restaurants has expanded 1.5 percent annually while the population increased 0.7 percent. Bank of America Merrill Lynch reports that Alabama, California, Kentucky, Mississippi, and Tennessee have seen unit growth outstrip the increase in population growth. The District of Columbia, Minnesota, North Dakota, South Dakota and Wyoming have had population growth that exceeds the numbers of new restaurants. Presently the Southeast is over-supplied and the Midwest is under-supplied.

As for the specific chains that have been that have “unfavorable state exposure,” Bank of America Merrill Lynch calculates that BJ’s Restaurants, Chuy’s, Jack in the Box and Sonic have had the greatest unit expansion exceeding population.

Bank of America Merrill Lynch believes that chains like Ruby Tuesday and Applebee’s will have to continue to close restaurants in order to see same-store sales increase. They also think many fast-casual chains are continuing to expand too quickly despite soft sales growth.

However, while it is certainly true that population is important in supporting restaurant sales, there are other factors involved. Restaurants compete with home cooked meals as well as with other restaurants. Consumers also have the option to skip meals as well, breakfast being the prime example. Many potential customers may have a limitation on how much they are willing to travel in time and/or distance to patronize a restaurant. The closer the restaurant is will impact on how often customers will visit or whether they will go there at all.

Most important of all, if a restaurant can provide an excellent experience for the guests, the more customers will come and the more often they will come.

Economic News This Week

• Foodservice employment plummeted in September. According to the Bureau of Labor Statistics’ well known “Jobs Friday” report, restaurants and bars lost 104,000 jobs in September. The Bureau places the blame squarely on the hurricanes Harvey and Irma. Not only were jobs lost due to restaurant closings but also because employees and their families were seeking refuge from the storms. Overall, the U.S. lost 33,000 jobs for the month, the first monthly job loss in 6 years. But labor experts contend that job loses as the result of natural disasters historically bounce back quickly. Hurricanes may actually increase employment as people are hired to clean up and rebuild. The report also found that wallets were heavier in September as average hourly earnings rose 0.5 percent. In the past 12 months, earnings have risen 2.9 percent.
• Initial jobless claims fell by 12,000 To 260,000 for the week ending Sept. 30. The 4-week moving average fell by 9,500 to 268,250. The Department of Labor stated again this week that the number of claims was impacted by the recent hurricanes but did not provide any specifics.
• Car and light truck sales bounced up in September after a series of weak sales months. Pickup trucks and SUVs led the way with gas prices remaining relatively low. Observers noted that manufacturers’ incentives were more than $4,000 per vehicle, an all-time high. September sales were also aided by the replacement of hurricane-damaged vehicles in Texas and Florida. There are projections that as many as 600,000 vehicles need to be replaced.
• Consumers increased their borrowing by 4.2 percent in August according to the U.S. Federal Reserve. Revolving credit (mostly credit card debt) grew by 7.0 percent while non-revolving credit (auto loans, boat loans, student loans, etc.) grew by 3.2 percent.
• The National Retail Federation predicts that Christmas spending will rise 3.6 percent to 4.0 percent this year. The forecast is based on more shopping days this year and strong consumer confidence.
• New factory orders for manufactured durable goods increased 2.0 percent in August. Transportation equipment led the increase, rising 5.1 percent.
• The Institute for Supply Management’s Production Manufacturing Index grew in September. The Index rose 2 points to 60.8 from 58.8 in August. (Any number over 50 shows expanding activity.) The Institute reported that Index has now increased for the 100th consecutive month. The Production Index rose to 62.2 from 61.0 in August. The New Orders Index rose by 4.3 percentage points to 64.6. The Order Backlog Index increased 0.5 percentage points to 58.0 while the Employment Index inched up from 59.9 in August to 60.3.
• The Institute for Supply Management’s Non-Manufacturing Index rose in September to 59.8. That represents an increase of 4.5 percentage points from August. The New Orders Index rose 5.9 percentage points to 63.0. The Employment Index inched up 0.6 percentage points to 56. The Order Backlog index rose 2.5 percent to 56.0. (Any number over 50 indicates increasing activity.) September marks the 93rd consecutive month that the non-manufacturing index has increased.
• The Chicago Production Manufacturing Index shot up in September. The Index hit 65.2, which was up from 58.9 in August. (Any reading over 50 indicates expansion.) This is the highest level in 3 months and the second highest in 3 years. All of the components of the study increased, with Order Backlogs at a 29-year high.

Foodservice News This Week

• Coffeehouse sales will hit $23.4 billion this year. That is an increase of 41 percent from 2011 according to researcher Mintel. By 2021, Mintel forecasts sale of $28.7 billion, even though the growth in the number of coffee shops is slowing with just 2.17 percent more units opening this year. Mintel believes that consumers interest in premium, pricier coffee products is driving the volume increase.
• Fast-casual restaurant sales are slowing in Canada. However, the amount of restaurant spending by Canadians, traditionally less than by those in the U.S., is slowly catching up with their southern neighbors.
• Gordon Foodservice announced the acquisition of Ettline Foods Corporation. Ettline is a broadline food distributor located in York, Pa., that services a four-state area. The price of the purchase was not given.
• Corporate Stirrings: Warren Buffett’s Berkshire Hathaway Inc. has purchased a 38.6 percent equity stake in Pilot Travel Centers LLC. Mr. Buffett sees “more goods moving to more people as the years go by … ” Pilot Travel Centers is privately held and the Haslam family will hold 50.1 percent ownership of the company. The price Berkshire Hathaway paid for the investment was not disclosed. Fat Brands, parent company of Fatburger, will have an initial public offering with hopes to raise $24 million at $12 a share. The cult brand’s goal is to expand from their current 300 units to 500 locations
• Growth Chains: Smoothie King franchisees plans on opening 16 units in the Cincinnati area within the next 5 Years. Smoothie King plans on adding 20 locations in the Washington, D.C., market in the next 2 years. Cameron Mitchell Restaurants has opened a Marcella’s restaurant in Denver, the first outside their home market of Ohio. Dairy Queen will open 10 to 20 stores in the Kansas City market in the next 7 years. Rock N Dough Pizza Company is opening its fouth location in Tennessee. Next Level Burgers wants to open 1,000 units in the first decade of the company’s existence.  Tropical Smoothie Café will open 4 cafes in Utah. R Taco will open 13 locations in Ohio and Kentucky.
• Comparable Store Sales: Bad Daddy Hamburgers up 1.4 percent, Good Times Burgers up 3.9 percent and YUM China (KFC up 7.0 percent and Pizza Hut Flat.)

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