Restaurants are performing well in the minds of most consumers according to a recent study. Sysco bows out of the US Foods merger. Buffalo Wild Wings pleases guests by adding staff. Ruth’s Chris and Hooters are both investing heavily in remodeling. These stories and a whole lot more This Week In Foodservice.
How satisfied are American consumers with their experiences at restaurants? According to a survey of over 5,000 people, the American Customer Satisfaction Index found the restaurant business is doing okay but full-service restaurants were outperforming their limited-service compatriots. In fact, full-serve operators ranked near the top of the list with an overall score of 82 tying them with 5 other industries for third place overall behind television and video players (which scored 86) and credit unions (which scored 85). The full-service category results were steady with last year’s findings and have risen 7 percent in the last 5 years.
Texas Roadhouse came out number one this year with a score of 83 while Ruby Tuesday was in last place with 73.
Limited-service restaurants scored 77 overall down, 3.8 percent from last year. Actually, the score puts LSRs in the middle of the pack and ahead of 18 other industries. (Subscription TV services and internet service providers came in at the bottom of the list with both scoring 63.)
Chick-fil-A was a clear favorite among those surveyed scoring an impressive 86. Moreover, Chick-fil-A came out first in every category such as order accuracy, food quality, courtesy, etc. And, not terribly surprising, McDonald’s came in at the bottom of the LSR rankings with a score of 67, down 5.8 percent from last year.
While there is certainly room for improvement, particularly among limited-service operations, customers seem at lease moderately pleased with the restaurant industry.
Economic News This Week
- First quarter gross domestic product was better but still bad in the Department of Commerce’s third estimate. The Bureau of Economic Analysis third estimate showed the economy shrank by 0.2 percent in the first quarter of this year. The Bureau’s second estimate was minus 0.7 percent. The first quarter saw “negative contributions” from exports, non-residential fixed investment and state and local government spending. Most economists forecast a return to positive GDP in the second quarter.
- New single-family home sales showed a nice gain in May, rising 2.2 percent over April sales to a seasonally adjusted annual rate of 546,000. In the first 5 months of this year new single-family home sales are up 24 percent over the comparable period in 2014. As encouraging as the May sales increase is, it is running at about 75 percent of average annual sales from 2000 to 2014.
- Consumer spending rose 0.9 percent in May the largest monthly jump since August 2009. Some economists attribute the increase to an improved labor market as well as cheaper gasoline prices. Consumers also had more dollars in their wallets as personal income rose 0.5 percent in May.
- Initial jobless claims remained low with a slight increase of 3,000 to 271,000 in the week ending June 20. The 4-week moving average fell by 3,250 to 273,750.
- Manufactured durable goods orders fell by 1.8 percent in May. The Census Bureau reported this was the third month out of the last four that new orders declined. New orders for transportation equipment drove the decline, falling by 6.4 percent. Without transportation orders, durable goods orders were up 0.5 percent but excluding defense new orders were down 2.1 percent. Shipments of manufactured durable goods fell 0.1 percent while unfilled orders fell 0.5 percent. Nondefense orders for capital goods – those goods used to manufacture other goods – dropped 6.6 percent in May.
- The Reuters/University Of Michigan Consumer Sentiment Index final June reading showed a sharp increase to 96.1 after dipping to 90.7 in May. The June result is the highest the index has been in 5 months. The current conditions index rose to 108.9, up from 100. 8 in May and the expectations index increased from 84.2 in May to 87.8 in June.
Foodservice News This Week
- Sysco has announced they have terminated their efforts to merge with US Foods. Last week a federal court ruling upheld the Federal Trade Commission’s position that the proposed merger between the #1 and #2 U.S. foodservice distribution firms would result in less competition and higher prices for foodservice operators. Sysco will pay break-up fees to US Foods and the Performance Food Group. Sysco had a contract to sell 11 US Foods locations to the latter company.
- Buffalo Wild Wings’ labor expenses are up and the chain is happy. BWW has established a new position called the “guest experience captain” whose role is to provide the ultimate experience and it appears to be working. While employee costs are up and profit growth has slowed, loyalty and customer satisfaction are both up, as are same-store sales.
- The City of St. Louis aldermen are rethinking a bill that will raise the minimum wage. The bill called for the minimum wage to go to $10 an hour immediately and rise to $15 an hour by 2020. A new proposal would take the minimum wage to $8.25 an hour immediately and extend the time for $15 an hour to 2024. The Missouri Restaurant Association said that the $10 an hour wage would cost St. Louis 3,100 jobs and restaurants expenses would rise by $27,200 the first year.
- Ruth’s Chris Steakhouse announced a renovation project that includes a larger bar and a brighter dining room that the chain hopes will attract younger customers. Called Ruth’s 2.0, the cost may run as high as $15 million.
- Hooters has remodeled over 60 of its U.S. restaurants and is the process of remodeling dozens more.
- Jamba Juice and Brugger’s Bagels announced they will open co-branded stores. The two companies tested the concept near the University Of Connecticut last year and will begin rolling out 9 co-branded stores in the Midwest, East Coast and New England.
- Olive Garden’s same-store sales increase in the last 10 months has been driven in large part by take-out. The chain is also gearing up a delivery program for large parties. Olive Garden is also investing in technology including tabletop tablets for ordering and paying checks, screens to show customers’ their waiting times during busy periods, and a system for people to make reservations and see wait times online.
- Pizza Hut franchisee Muy Cos. opened a sports bar concept in Minneapolis. The restaurant will serve cocktails, beer and wine and is aimed at increasing Pizza Hut dine-in business.
- New York City schools will expand free breakfasts and estimates the participation rate will rise from 22 percent to 75 percent.
- Corporate Stirrings: Darden Restaurants will separate their real estate holdings by transferring over 400 of their 1,500 restaurant properties into a publically traded real estate investment trust or REIT. Darden will also continue to explore sale and leaseback arrangements for other properties. Darden has been criticized by some investors for not being more active in managing their real estate to maximize shareholder return. Brinker International has acquired Pepper Dining Holding Company, a Chili’s franchisee with 103 restaurants, primarily in the Northeast and Southeast.
- Growth Chains: Golden Chick plans on developing 80 new restaurants in the next 10 years. Krispy Kreme has signed an agreement for 8 stores in the Chicago area. Bruster’s Real Ice Cream has signed a development agreement for 10 units in South Korea, the firm’s first expansion in Asia. Shake Shack believes slow expansion is best for their brand and plans adding 10 restaurants a year until they reach 450 locations. Darden will open 8 to 10 LongHorn restaurants and 6 to 8 Yard House restaurants in fiscal 2016. Fuddrucker’s has opened a restaurant in Poland and plans on opening 10 more in Central Europe. The Bravo Brio Restaurant Group plans on opening 3 Bravo! restaurants and 2 Brio restaurants this year. Johnny Rocket’s will open 10 restaurants in Poland over the next 5 years.
- Comparable-store sales reports: Darden (Bahama Breeze up 1.7 percent, Capital Grille up 4.4 percent, Edie V’s up 5.2 percent, LongHorn up 5.2 percent, Olive Garden up 3.4 percent, Seasons 52 up 3.1 percent, and Yard House up 3.2 percent), Luby’s (all concepts down 1.1 percent, Luby’s Cafeteria down 1 percent, Fuddrucker’s up 0.2 percent, Cheeseburger In Paradise down 7.2 percent and combo units down 3.7 percent.) and Sonic Drive-ins (system up 6.1 percent, company-owned up 5.5 percent, and franchised up 6.1 percent.)
For details and same-store sales of other chains, please click here for the Green Sheet.