The National Restaurant Association reported that business was soft in August. Foodservice hiring remained strong last month. McDonald’s makes major changes in their Canadian operations. Dunkin’ Donuts says slowing sales are the result of higher prices that the chain raised in response to increasing minimum wage requirements. These stories and a whole lot more, This Week in Foodservice.
The Restaurant Performance Index dropped 1.2 percent from July to 101.5 in August. This is the lowest the Index has been in 11 months. But, as the National Restaurant Association pointed out, the Index remains in positive territory and has been in expansion mode for 30 straight months.
The Index was pulled down by a 2.3 percent decline in the Current Situation Index. Both same-store sales and traffic were down considerably from July. However, July was a strong month for both comp sales and traffic, which makes the decline look especially bad.
The other major component of the RPI, the Expectations Index, also declined by just by 0.1 percent to 101.6. This is the 34th consecutive month the operators remained at least marginally positive about the future, according to the National Restaurant Association.
Operators investing in expansion, remodeling and/or new equipment in the last 3 months fell sharply from 72 percent in July to 63 percent in August. But, here again the July reading was above average and the August number was strong historically.
The percentage of operators planning an investment in the next 6 months also declined, from 66 percent in July to 60 percent in August. But for sake of comparison, the reading for this question in June was 59 percent and 54 percent in May.
August was nothing to cheer about, but purchasing and intent to purchase in the future provide a decent outlook for foodservice suppliers.
Economic News This Week
- The Chicago Production Index dropped 5.7 points to 48.7 in September. Any reading of less than 50 shows contraction in business activity, and this is the fifth time this year the Chicago area slipped into contraction mode.
- July home prices increased 4.7 percent from the same time frame last year according to the S&P/Case-Shiller report. Prices were up 0.7 percent in July over June on a seasonally adjusted basis.
- Construction spending climbed 0.7 percent in August over July. Versus August 2014, construction spending was up 13.7 percent. In the first 8 months of the year construction spending was up 9.8 percent over the same period in 2014. Residential construction spending was up 1.3 percent in August from July.
- Light vehicle sales surged In September. Chrysler, Ford and GM all had double digit sales increases driven in large part by expensive pickups and SUVs. Experts raised their forecast for the year to 17.4 million vehicles, which would be the best year since 2000.
- The ADP National Employment Report showed the economy added 200,000 jobs in September. The report took an unusual twist with large employers responsible for most of the hiring. Companies with 500 or more employees accounted for 106,000 new hires. Most sectors of the economy increased their employment with the exception of manufacturing, which dropped by 15,000. Given many of the reports on manufacturing activity this decline would be expected.
- Initial jobless claims rose 10,000 to 277,000 for the week ending September 26. The 4-week moving average declined 1,000 to 270,750. First time claims remain low by historical standards.
- The Bureau of Labor Statistics reported new jobs grew by 142,000 in September. This was a disappointing number given forecasts of 200,000 new positions. The BLS also revised the number of new jobs downward for both August and July. Further, new jobs in the private sector increased just 118,000. There was an unusual jump of 24,000 new jobs for government entities. The number of long term unemployed remained high and the unemployment rate was constant at 5.1 percent.
- The Institute for Supply Management’s Production Manufacturing Index retreated from 51.1 in August to a barely positive reading of 50.2 in September. A number that exceeds 50 indicates increasing business activity. The New Orders Index was just 50.1, the Production Index was 51.8, and the Employment Index was 50.5, all down from August. Of the 18 industries included in the ISM study, 11 reported contracting in September.
- The Institute for Supply Management’s Non-Manufacturing (Service) Index dropped 2.1 percent points from August to 56.9 percent in September. The New Orders Index fell 6.7 percent to 56.7 percent but the Employment index rose 2.3 percentage points to 58.3 percent in September from August. Out of 17 non-manufacturing industries studied by the Institute, 13 reported expansion in September including accommodations and foodservice.
- Consumer confidence was up “moderately” in September. The Conference Board’s Consumer Confidence Index rose to 103 last month, up from 101.3 in August.
- Foodservice hiring remained strong in September, with posting a 20,700 new hires, per The Department of Labor.
- McDonald’s Canada is launching a “brand revolution.” BurgerBusiness reports McDonald’s 1,400 locations in Canada are adding WalMart style greeters, table service, and high tech equipment. The plan will add 15,000 workers and cost $200,000 a store.
- Dunkin’ Donuts says higher prices in response to higher wages are causing sales and traffic to slow. Dunkin’s stock fell 12 percent when the chain announced same-store sales would drop to 1.1 percent in the third quarter from 2.9 percent in the previous quarter while traffic would be down 0.7 percent in the quarter after increasing 0.6 percent in the second quarter. Proponents of higher minimum wages contend that paying employees more can be recovered easily by small menu price increases without any material impact on sales. But, the basic rule of economics is “There is no such thing as a free lunch.”
- Speedway C-stores will close 100 self-serve Dunkin’ Donut kiosks. Dunkin’ Donuts said that the closing operations account for 0.1 percent of their sales and that Speedway will remain a Dunkin’ franchisee.
- Consumer behavior is a puzzle, so says the National Restaurant Association’s chief economist. Bruce Grindy notes that despite adding 12 million new jobs, the NRA’s most recent national consumer survey by ORC International shows that attitudes toward the economy are still as bleak as they were 5 years ago. Grindy says things are bound to pick up with rising home prices, lower debt burdens, jobs more plentiful, and lower gas prices. All true, but perhaps consumers are more influenced by the fact that wages are not rising.
- Foreign-based foodservice companies continue to target the U.S. for growth. Some chains like Tim Horton’s, Freshii, and Pret a Manger are either well established or are quickly becoming so. Here are some others of interest. Viena is a multi-concept operation from Brazil. The Majlis is a camel milk concept based in Dubai. Baker’s Delight operates in Canada as COBS Bread. Mr. Bean offers a soy based menu and is based in Singapore. Jollibee is the largest fast food operation in the Philippines. Bonchon Chicken sells Korean style fried chicken and is currently operating in 11 states. Max Brenner started as a specialty chocolate shop in Australia and now has both full service and fast casual concepts. Smoke's Poutinerie has over 100 locations in Canada and hopes to have 1,000 units in the U.S. Kaati Zone is an Indian restaurant offering flatbread rolls.
- A judge allowed a class action suit against McDonald’s for state wage law violations. The federal judge in Northern California ruled that that the employees believed that they were working for McDonald’s rather than for franchisees since they had applied on McDonald’s website, wore McDonald’s uniforms, serve McDonald’s food in McDonald’s packaging, and received pay stubs and orientation materials with McDonald’s name and logo.
- OpenTable, the online restaurant reservation platform, introduced an app called Premium Reservations. Subscribers can book same day, primetime reservations at some of New York’s swankiest restaurants. The cost is $100 to $200 which goes to the restaurant. The charge is not deducted from the restaurant check. This is surely pricey but sooner or later someone will point out that restaurant patrons could easily spend that amount tipping a concierge or a restaurant employee to get a table.
- Corporate Stirrings: Wayback Burgers plans an initial public stock offering in 2016. Cracker Barrel’s board of directors has authorized repurchasing the company’s shares up to $25 million. Burger King France’s majority shareholder, Group Bertrand, is negotiating to buy French chain Quick. Burger King left France in 1997 and reentered the market in 2013. BK now has 25 restaurants in France while Quick has more than 500. If the deal is completed Burger King will be the second largest fast food chain in France behind McDonald’s. Preferred Restaurant Brands Inc. will rebrand seven Capriotti’s Sandwich Shop locations to “America’s Best.” Chanticleer has purchased Little Big Burger, an eight unit chain in Oregon.
- Growth Chains: Wingstop plans to add 120 to 130 new locations this year. Marco’s Pizza will open 35 new restaurants in Colorado and Wyoming. Del Taco has signed an agreements with 3 groups to open a total of 27 locations in Central California. Pie Hole has signed a master franchise agreement to open about 20 restaurants in Japan. “The Original” Kono Pizza has signed an agreement to open 10 new restaurants in Dallas.
- Comparable Store Sales Reports: Dominos (U.S. System up 10.5 percent, company owned up 11.5 percent and franchised up 10.4 percent.)
For details and same-store sales of other chains, Please Click Here for the Green Sheet.