The Census Bureau reported restaurant sales did well in September. YUM! plans to spin off its China division. McDonald’s all-day breakfast appears to be a hit with consumers, but the same can’t be said for franchisees. Food away from home prices accelerate. Red Robin “takes back the bar” just as neighborhood bars fold. These stories and a whole lot more This Week in Foodservice.
U.S. retail sales rose just 0.1 percent in September compared to August. Total sales increased 2.4 percent from August 2014 and are up 2.1 percent in the first 9 months of this year. Motor vehicle and parts sales increased 1.8 percent. Without motor vehicle and parts sales, total retail sales would have been down 0.3 percent for the month.
The good news is that restaurants and drinking places once again bucked the overall trend and increased 0.7 percent. Restaurants and bars saw sales grow 7.9 percent over September 2014 and are up 8.5 percent in the first 9 months of the year. Thus, restaurants have grown 4 times faster than the total retail market.
As we point out every month, there are certain limitations and caveats regarding the U.S. Census Bureau’s retail sales data. The figures are preliminary in nature and based on a small sample. As a larger sample is gathered, the figures may be, and frequently are, significantly updated.
Economic News This Week
- Initial jobless claims totaled 255,000, a decline of 7,000 for the week ending October 10. This is a 42-year low for claims. The less volatile 4-week moving average was 265,000, a decline of 2,250. While hiring may be sluggish, employers are not laying off, either.
- The number of job openings decreased in August, according to the Bureau of Labor Statistics’ Job Opening & Labor Turnover (JOLT) Study. Job openings fell from an all-time high of 5.7 million in July to 5.4 million in August.
- The Producer Price Index declined 0.5 percent in September for final demand goods. Final demand goods fell 1.2 percent and final demand services fell 0.4 percent. Food prices fell 0.8 percent and energy prices fell 5.9 percent. Without food and energy prices, final demand goods prices dropped 0.4 percent.
- The September Consumer Price Index decreased 0.2 percent on a seasonally adjusted basis, the Bureau of Labor Statistics reported. The CPI was pulled down by a 4.7 percent drop in energy costs, which was pulled down by a 9.0 percent decline in gasoline prices. Food prices rose 0.4 percent in September.
- Industrial production fell 0.2 percent in September after falling 0.1 percent in August. But, industrial production rose 0.4 percent over September 2014. Capacity utilization fell 0.3 percent to 77.5 percent in September vs. August. September capacity utilization was 2.6 percentage points below the long-term (1972-2014) average.
- The October Empire State Manufacturing Survey showed a decline in manufacturing activity for the third straight month. The N.Y. Federal Reserve reported that despite general business conditions increasing by 3 points, the index stayed in negative territory at -11.4. Any reading less than zero indicates falling business activity.
- The Philadelphia Federal Reserve Bank’s Manufacturing Business Outlook Survey shows significant weakness in manufacturing activity in the region it covers. The October Index hit -4.5, up slightly from September’s reading of -6 to -4.5. Readings of less than zero indicate contraction. The New Orders Index was -10.6, the Shipments Index was -6.1, and the Unfilled Orders Index was -11.7. Overall this was a pretty depressing report indicating manufacturers are not having a good year.
- The preliminary results show the Reuters/University of Michigan Consumer Sentiment Index advanced to 92.1 from the final September reading of 87.2. The Current Conditions Index rose to 106.7, up from 101.2 in September while the Expectations Index rose to 82.7 from September’s 78.2. Both indices were up from October 2014 and quite a bit higher than the forecasts.
Foodservice News This Week
- YUM! will spin off its China business. YUM has given up on turning around its China operation even though the company had been extremely successful until recently. YUM! Brands was the first U.S. company to enter the Chinese market back in 1987 and now has 4,900 KFCs, 1,700 Pizza Hut locations and another chain called Little Sheep. The Wall Street Journal notes that while 6,900 of YUM’s 41,000 worldwide are in China, the chain’s decision to abandon the country shows the difficulty of operating in the complex Chinese market.
- How is all-day breakfast working for Mickey D’s? Depends on who you ask. One survey of consumers found that all-day breakfast was being very well received but Time says franchisees are reporting the new program “…is slowing down service, causing chaos in the kitchen, and driving away customers. One McD franchisee is calling it a “non-starter” trading customers down to lower priced breakfast items and not generating new traffic.
- Food away from home prices increased 0.5 percent in September, according to the Bureau of Labor Statistics Consumer Price Index. This gives food away from home the distinction of having the fastest-growing item on the index in September. Food at home prices rose 0.3 percent. In the 12 months ending in September, food away from home prices have increased 2.9 percent, the second biggest increase behind the price of shelter, which grew 3.2 percent.
- Red Robin plans to accelerate its remodeling efforts. More than half of the chain’s 500 locations have already been remodeled and the company projections call for another 150 this year. Red Robin plans to complete the rest in 2016. The thrust of the program was to “take back the bar” and increase beverage alcohol sales. This was accomplished by separating families from singles and couples. Beverage alcohol sales rose 3.5 percent to 4.0 percent in the remodeled restaurants.
- Say so long to your neighborhood bar. Nielsen reports that 1 in 6 neighborhood bars closed between 2004 and 2014. While more than 300 new bars open each month, over 600 close. The reason for the decline is in large part due to consumers’ preference for drinking in places that also serve food, particularly for fast-casual operations.
- Union Square Hospitality Group will do away with tipping. Danny Meyer, CEO of the multiconcept operation, announced that all 12 of the firm’s restaurants will eliminate tipping by the end of 2016. The restaurants will raise prices with the goal of increasing the wages of non-tipped employees. The company calculates that kitchen employees wages will rise from roughly $11 and hour to over $15 while servers pay will stay about the same.
- Restaurants and butcher shops merge. Here’s an emerging retail-meets-restaurant trend worth monitoring: At operations like Kensington Quarters in Philadelphia and Clove & Hoof in Oakland, California, customers can have a nice meal then take home some of the raw product to cook themselves.
- McDonald’s has a new strategy in Japan. The chain will focus on low prices and will introduce 3 new burgers priced at 200 yen. The goal is to reverse a decline in sales that began with an expired meat scandal in 2014.
- Corporate Stirrings: Whole Foods Market, Inc. made a minority investment in Mendocino Farms, an 11-unit upscale sandwich shop located in Los Angeles. The plan is to test Mendocino Farms units in Whole Foods locations as well as to expand the sandwich chain into the San Francisco and San Diego areas. Smashburger has sold 40 percent of the company to Jollibee Foods Corporation. Fresh & Easy Neighborhood Market Inc., formerly owned by the food giant Tesco, is preparing for its second Chapter 11 bankruptcy filing in 2 years. The filing may be forestalled if a buyer can be found for part or all of the chain.
- Growth Chains: Pie Five Pizza will open 8 to 10 units in the San Antonio market. Saladworks plans to open 15 restaurants in Texas in the next few years. Cold Stone Creamery inked a master franchise agreement for 13 locations in Cambodia. Famous Dave’s has a partnership agreement to open 4 restaurants in the United Arab Emirates. Tropical Smoothie Café has signed 83 franchise agreement in the third quarter of this year. Jersey Mike’s Subs opened its 1,000th restaurant. Vitality Bowls, which describes itself as offering the healthiest food on the planet, plans to have 100 locations by the end of 2016.
- Comparable Store Sales Reports: Del Frisco’s Restaurants (Del Frisco Grille down 3.5 percent, Double Eagle down 1.4 percent, and Sullivan’s up 1.2 percent), and Sonic Drive-Ins (system up 4.9 percent, company owned up 4.5 percent and franchised up 4.9 percent.)
For details and same-store sales of other restaurant chains, please click here for the Green Sheet.