The National Restaurant Association says restaurant performance continues to slide. The impact of minimum wage seems to remain in the eye of who runs the study. U.S.-based chains dominate the Top 500 franchise companies. Foodservice operators continue to target early-bird diners. These stories and a whole lot more This Week in Foodservice.
The Restaurant Performance Index’s August decline represents the second consecutive month the index of restaurant industry economic indicators took a step backward. The index read 100.2 in August, down 0.4 from July. The good news? Any reading that exceeds 100 means the industry remains in expansion mode. Unfortunately, this represents the index’s lowest level since January this year.
Both major components of the index fell in August. The Current Situation Index dropped 0.5 percent to 100, which shows no expansion. The study showed more operators experienced lower same-store sales than had higher same-store sales. More operators saw their customer traffic decline than had an increase in traffic.
The Expectations Index dipped by 0.3 percent in August to a reading of 100.5. Only 29 percent of the operators in the survey expect to have higher sales in 6 months. And, just 20 percent of those in the study expect overall economic conditions to improve vs. 16 percent who think they’ll be worse.
Interestingly, operators’ willingness to invest in their businesses remains solid. The number of operators reporting they had made a capital expenditure for equipment, expansion or remodeling in the past 3 months was 65 percent in August, up 3 percent from July. And, 52 percent of those in the August study plan to make a capital investment in equipment, expansion or remodeling, up from 50 percent in July.
Economic News This Week
- The third estimate for real gross domestic product was revised up to +3.1 percent on an annual basis for the second quarter of 2017. This marks a .1 percent increase from the previous estimate. On the upside, the U.S. can look for continued expansion eight years after the end of the Great Recession. But the fact remains this is the weakest recovery in 60 years.
- Initial-jobless claims increased 12,000 for a final reading of 272,000 for the week ending Sept. 23. The 4-week moving average rose 9,000 to a level of 277,750. The number of claims has been trending up for the last month. The Department of Labor stated in this week’s report that claims were impacted by Hurricanes Harvey and Irma but did not provide any specifics.
- Real disposable personal income decreased 0.1 percent in August. Real personal consumption expenditures also fell 0.1 percent for the month.
- New home sales hit an eight-month low in August. New single-family home sales were projected to be at a seasonally adjusted annual rate of 560,000. This is 3.4 percent lower than July and down 1.2 percent from August 2016.
- Durable goods orders increased 1.7 percent in August according to the Census Bureau’s advance report for the month. The increase was driven by orders for transportation equipment, which grew 4.9 percent. Without transportation, new orders increased 0.2 percent. Without defense, new orders were up 2.2 percent. Shipments of durable goods rose 0.3 percent while unfilled orders were flat.
- The Conference Board’s Consumer Confidence Index declined “slightly” in September. The index now stands at 119.8, down from 120.4 in August. The Present Situation Index dropped to 146.1 from 148.4 in August, while the Expectations Index inched up to 102.2 from 101.7 in August. A Conference Board spokesman noted a decline in confidence in Texas and Florida, as a result of damaging hurricanes, but believes at least in the short run “the economy will keep expanding at its current pace.”
- The University of Michigan’s Index of Consumer Sentiment was “largely unchanged“ in September’s final results. The Index stands at 95.1, down from 96.8 in August. The Current Economic Index was 111.7, up slightly from August’s reading of 110.9. A spokesman noted that confidence “remained very favorable,” despite a long list of issues, such as the political partisan divide, North Korea, Charlottesville, and hurricanes.
- CEOs of U.S. consumer goods and retail companies are confident of economic growth. KMPG, the audit, tax and consulting firm, surveyed 41 top CEOs and found that 95 percent of them were optimistic regarding the future. However, 141 top executives outside the U.S. were less positive than their U.S. counterparts about growth in their countries.
Foodservice News This Week
- What impact does minimum wage have on employment? An op-ed piece in the Wall Street Journal points out that there is little agreement on the impact of minimum wage increases because of how people study the matter. Those who back an increased minimum wage come to a conclusion that a higher minimum wage is a free lunch for employees. Those against it claim that increasing the minimum wage results in lower hours worked and fewer jobs. Disagreements among economists are hardly anything new but it does indicate that the topic needs an intensive study.
- Foodservice operations represent 5 of the top 10 franchises in the world based on annual sales. McDonald’s is number one, followed by KFC (No. 3), Burger King (No. 4) and Subway (No. 5). In addition, 7-Eleven is the second largest franchise by sales volume, and Pizza Hut and Dominos are in the top 10, placing seventh and ninth respectively.
- The famous early-bird special is hot. Restaurants are striving to drive more volume between 5:00 p.m. and 7:00 p.m. Operators are trying to spread out the dinner rush by offering special menus and discounts, particularly on beverages. Darden’s Olive Garden takes this a step further with a special $9 menu between 3:00 p.m. and 5:00 p.m.
- Darden takes a financial hit from the hurricanes. The multiconcept operator reported Hurricane Harvey reduced its first quarter same-store sales by 30 basis points and earnings per share by 1.5 cents. Darden’s CFO added that the company expects Hurricane Irma, which occurred in a different quarter, to have double the impact of Harvey. Analysts estimate that 15 percent or more of Darden’s 1,700 restaurants had their business interrupted by the 2 hurricanes. One analyst said that Darden and Brinker had the most exposure to the storms and Starbucks had the least of all the major chains.
- Arcos Dorados reports on weather closings. The largest McDonald’s franchisee stated that most of the company’s 100-plus units in Puerto Rico and the U.S. Virgin Islands remain closed as of Sept. 26 due to the recent hurricanes. But, nearly all of the company’s 390 restaurants in Mexico have reopened since the earthquake. The chain continues to provide support to employees as well as delivering aid to local authorities and search and rescue teams.
- Lionsgate Film Studio is building an indoor entertainment center in New York. Located at Times Square, the center will include restaurants themed to movies and TV shows such as “The Hunger Games” and “Mad Men.”
- Freshii scales back its growth plans. The Canadian chain reduced the number of restaurants the company plans to open in its next fiscal year to 90 to 95 from 150 to 160. The company also plans to close its 18 locations in Target stores.
- Soupman Inc., the restaurant made famous on the television show “Seinfeld,” has emerged from bankruptcy, having shed $11 million in debt and trade obligations. Gallant Brands Inc., a company founded with the express purpose of taking over Soupman, now owns the concept.
- Growth Chains: The BMK Burger Bar, which has 15 restaurants, plans to open a mix of small and large restaurants with a goal of having 400 locations in the next 10 years. Arby’s has opened its first restaurant in Kuwait with two more to come. Current franchisees of Dickey’s Barbecue Pit restaurants in Louisiana plan to open 12 more locations in Louisiana and Texas. Hurricane Grill & Wings is in the process of opening 15 more of the concept’s Hurricane BTW fast casual concepts and plans to reach 100 locations of this concept in the next few years.
- Comparable Store Sales Reports: Darden (All concepts up 1.7 percent, Bahama Breeze up 1.2 percent, Capital Grill up 2.0 percent, Cheddar’s Scratch Kitchen down 1.4 percent, Edie V’s up 2.5 percent, LongHorn up 2.6 percent, Olive Garden up 1.9 percent, Seasons 53 up 2.2 percent, and Yard House down 0.4 percent.) Cheddars Scratch Kitchen lost significant business due to hurricane closures.
For details and same-store sales of other restaurant chains, Please click here for the Green Sheet.