It seems that monthly, if not weekly, a restaurant chain is being acquired, spun off, put in play or otherwise changing ownership hands. The most recent sale was Sonic but now it appears that Papa John’s Pizza may be put on the block or acquired by the chain’s founder.
The restaurant consulting firm of Aaron Allen cite a number of reasons for all the M&A activity:
- Capital is cheaper than ever thanks to record-low interest rates.
- The availability of capital is near record highs thanks to increasing corporate profits.
- There are trillions in capital sloshing around global markets seeking investments.
- Foodservice remains a steady, relatively easy-to-forecast growth sector expanding with inflation, population and discretionary income.
- Emerging and frontier economies will see the bulk of future growth and conglomerates in these markets look to Western brands to build their empires.
Aaron Allen also noted that many corporations have adopted a “grow fast or die” strategy.
One observation regarding point No. 4 above: Even assuming the analysis of the foodservice industry is correct, firms don’t buy the industry. They have to select specific operations. Any examination of foodservice history will show that the hottest chain now can quickly become a real loser in a short period of time.
Economic News This Week
- Initial jobless claims fell by 8,000 to 207,000 for the week ending Sept. 29. The 4-week moving average fell by 500 claims to 207,000.
- The ADP Employment Report found private employment grew by 230,000 in September. Mid-size companies (50 - 499 employees) accounted for 99,000 of the new jobs while the leisure and hospitality sector added 16,000 jobs.
- The September unemployment rate declined to 3.7 percent. The last time the unemployment rate was this low was December 1969. Unemployment rates below 4.0 percent are rare in modern U.S. times. A bit of negative news was that the number of new jobs added was 134,000 which was considerably below forecasts. The role of Hurricane Florence has on new jobs and other employment statistics can’t be qualified according the Bureau of Labor Statistics. (For data on September foodservice employment, please see the Foodservice News This Week section below.)
- New Orders for Manufactured Goods increased 2.3 percent in August from July according to the U.S. Census Bureau’s monthly full report. Shipments rose 0.5 percent and unfilled orders increased 0.9 percent. New Orders for Manufacture Durable Goods increased 4.4 percent, driven by transportation equipment.
- U.S. car and light truck sales fell in September with most major manufacturers experiencing declining sales. Soft sales were predicted despite a heavy use of incentives. Dealers blame higher interest rates, but some analysts still expect vehicle sales to reach 17 million this year based on sales the first half of this year.
- Private construction spending in August fell 0.5 percent from July on a seasonally adjusted annual rate according to the U.S. Census Bureau. Residential construction spending declined 0.7 percent in August vs. July.
- The Institute for Supply Management’s Production Manufacturing Index showed continuing growth in September but at slightly slower rate. The Index stood at 59.8, down 1.5 percentage points from August. (Any reading over 50 indicates increasing activity.) The Production Manufacturing Index in September is the 113th consecutive month of growth. The New Orders Index was 61.8, down 3.3 percentage points from August. The Production Index rose 0.6 percentage points to 63.9. The Employment Index increased 0.3 percentage point to 58.8. The Order Backlog Index fell 1.8 percentage points to 55.7.
- The Institute for Supply Management’s Non-Manufacturing Index increased in September, marking the 104th consecutive month the non-manufacturing sector grew. The index rose 3.1 percentage points from August to 61.6. (Any reading over 50 means increasing activity.) The New Orders Index increased 1.2 percentage points to 61.6. The Business Activity Index rose 4.5 percentage points to 65.2. The Order Backlog Index increased 2.0 percentage points to 58.5. The Employment Index rose 5.7 percentage points to 62.4. All 17 of the non-manufacturing industries studied, including Accommodation & Foodservices, reported growth for the month.
Foodservice News This Week
- Foodservice and drinking place employment fell by 18,200 in September. The Bureau of Labor Statistics stated that “the weakness in this industry in September may reflect the impact of Hurricane Florence.”
- Grupo Anderson to sell the Senor Frog’s brand in the U.S. There are currently four Senior Frog’s restaurants in the U.S. (Las Vegas, Miami, Myrtle Beach and Orlando) plus one in San Juan, Puerto Rico.
- Little Caesars’s pizza portal pickup is now nationwide. The pizza chain’s program allows customers using the Little Caesar’s app to order and pay for their pizza then bypass the store counter and go immediately to a locked, heated cabinet an retrieve their order using a three-digit code.
- Costco’s food courts are a $1 billion business. This isn’t bad for a chain with just 750 locations and whose most popular item is a $1.50 hot dog and soda combination.
- Growth Chains: London-based Crepeaffarie with 20 locations in 4 countries will open their first restaurant in the U.S. in the first half of next year. China’s Heytea Tea Shops plan to double the number of shops to 200 by the end of the year. Del Frisco will open a Double Eagle Steakhouse in San Diego and another in Los Angeles. Checkers Drive-In Restaurants plans to add 300 more units by 2020. Newk’s Eatery will open 3 restaurants in the Ft. Myers-Naples area.
- Comparable Store Sales
For the latest of chain comparable store sales, please click here for the Green Sheet.