Incentives are the norm for selling franchises. Economic expansion slowed to a crawl in the fourth quarter. Pizza Hut is investing in new ovens. Olive Garden takes their catering program nationwide. Seattle’s $15 minimum wage is being challenged in court. These stories and a whole lot more This Week in Foodservice.
With all the franchises now available, the Wall Street Journal reports that it has created a buyers’ market. As a result, franchisers now offer such incentives as discounted franchise fees and reduced royalties to sign new franchise operators.
Wings & Rings, headquartered in Cincinnati, sold one franchise in 2013 but sold 17 in 2014 after reducing the franchise fee to $5,000 from $35,000. Other incentives include not charging royalties for the first six months and contributing funds towards the franchisee’s grand opening marketing program.
The Journal article states that the larger, better established chains are offering the incentives to existing franchisees with multiple stores. Denny’s gives new franchisees a break of up to $1 million on initial fees and other costs if they develop six new restaurants “within a reasonable time frame in new and emerging markets.”
Do the incentives work? The article points out that the wealthiest people in the world still want the best deal.
Economic News This Week
- Gross Domestic Product increased 0.7 percent in the fourth quarter, according to the Department of Commerce’s advance estimate. While consumers continued to spend, businesses cut spending. GDP grew 3.9 percent in the 2nd quarter and 2.0 percent in the 3rd quarter so the momentum of the economy appears to be trending down. For all of 2015, GDP expanded at 2.4 percent which is identical to 2014. Some observers believe that 3.0 percent growth per year was “average” but 2015 is the 10th year in a row without GDP hitting 3.0 percent once.
- Personal Income rose 0.3 percent in December but Personal Spending was flat. Why consumers suddenly turned frugal in December and decided to save their increased earnings is unclear but for the entire year spending was the highest it has been in a decade.
- Initial-jobless claims totaled 278,000, a decline of 16,000 for the week ending January 23. The more stable 4-week moving average was 283,000 which is a decline of 2,250.
- The Chicago Purchasing Managers Index bounced back in January to 55.6, an increase of 12.7 points. Readings that exceed 50 indicate increasing business activity. The January reading marked the highest growth in a year. The New Order Index jumped 20.2 points to 58.8. The Production Index also ended up well over 50. It is encouraging to see some good news about manufacturing.
- New single family home sales jumped in December to a seasonally adjusted annual rate of 544,000. The US Census Bureau reports this is a 10.8 percent increase over November. For 2015 the Bureau estimates single family home sales were 501,000, a 14.5 percent increase from the estimated 437,000 homes sold in 2014.
- The Gallup Organization’s U.S. Economic Confidence Index is at its highest levels since June. Yet the index shows most Americans still have a negative outlook about the U.S. economy. With the exception of a few weeks early last year when the numbers were slightly positive, the Gallup study has been in negative territory since its inception in 2008.
- January’s Consumer Confidence Index hit 98.1, a 1.8 point increase compared to December. In explaining the increase, the Conference Board pointed to an uptick in the Expectations Index, which went to 85.9 in January from 83.0 the previous month. The Current Situation Index was unchanged at 116.4.
- The University of Michigan Consumer Sentiment Index edged down slightly in January falling to 92.0 from 92.6 in December.
Foodservice News This Week
- The National Restaurant Association’s Restaurant Performance Index declined 1.6 percent in December, checking in at 99.7. This is the first time since February 2013 that the index stood at less than 100, which indicates contraction in the index of key industry indicators. More details to follow next week.
- Pizza Hut is introducing a new oven which is said to bake pizza in 3 minutes, about 25 percent faster than the equipment it is replacing. The new oven operates at 575 degrees F and Pizza Hut expects to install 1,000 of them this year. The new oven is part of Pizza Hut’s rebranding effort.
- Olive Garden makes catering available nationwide for orders of more than $125 and includes a 15 percent delivery fee. This option joins Olive Garden’s take-out program. Customers can purchase chafing dishes, racks and fuel along with the order.
- The International Franchise Association is taking its challenge of Seattle’s $15 an hour minimum wage to the Supreme Court. The Association contends that applying the law to franchise businesses and not to small independent businesses is illegal. The point of contention is that independents have until 2021 to raise pay to $15 an hour while other businesses have to raise their rate to $15 an hour by 2017.
- Three more C-store chains announce employee wage increases. Following the lead of Sheetz and Wawa, Cumberland Farms Stores, Ricker’s Convenience Stores and Rutter’s Farm Stores said they are raising their store employees’ wages.
- Starbucks scales back its Teavana operation. The Seattle coffee giant is closing three tea bars in New York City and converting the locations to Starbucks operations. Another Teavana in Beverly Hills will close, too, while a fifth store in Seattle will remain open to test new ideas.
- The number of C-stores in the U.S. increased to 154,195 in 2015. Adding 1,401 units represents a 0.9 percent growth over 2014.
- Steak ‘n Shake will freeze menu prices for the rest of the year. The chain said the move is to distinguish Steak ‘n Shake from its competition. Some published reports indicate up to 60 percent of operators plan to increase menu prices this year.
- Manitowoc Company reported a 4.7 percent increase in foodservice equipment sales last quarter.
- Most consumers like tipping. A survey by Horizon Media found 81 percent of restaurant-going adults prefer tipping to higher menu prices, fearing service will be worse if tipping is eliminated.
- A surprising group of restaurants will cash in on Valentine’s Day. White Castle started offering table service with candles, flowers and heart shaped balloons a decade ago. The famous sliders are served on silver platters and Valentine’s Day has become such a cult favorite that the chain recommends customers call for reservations. Waffle House not only has white table cloths and dressed up wait staff but upgrades its menu as well. Qdoba offers to find customers a date by offering a free burrito if they can find someone in line that will kiss them.
- Corporate Stirrings: Starbucks partner in Spain, Grupo Vips, has regained control of its operation by buying Starbucks’ 49 percent interest in the company. Starbucks bought the share of the company in 2013 when Grupo Vips experienced financial problems. There are 90 Starbucks locations in Spain.
- Growth Chains: Huddle House plans to open 30 new restaurants this year. Pie Five Pizza has an agreement to open seven locations in Memphis. Doc Popcorn will open 20 new stores in 2016 and also has a partnership agreement with Dippin’ Dots for co-branded C-stores in the south. Dunkin’s Donuts will open four units in Detroit along with a co-branded Baskin-Robbins. Pizza Patron has set a target of adding 70 restaurants in Texas in the next few years. McDonald’s will open 250 locations in China this year.
- Comparable Store Sales Reports: Only one report this week – Captain D’s up 4.0 percent.
For details and same-store sales of other chains, Please Click Here for the Green Sheet.