March retail sales were disappointing. One restaurant executive says a $15 an hour minimum wage would be “catastrophic.” Foodservice is the 500 pound gorilla in c-stores. Menu prices continue to climb. These stories and a whole lot more This Week in Foodservice.
U.S. retail sales declined 0.3 percent in March compared to February’s levels, according to the U.S. Census Bureau. Major drops in vehicle sales and automotive parts were responsible in large part for the decline. Excluding sales of vehicles and parts, total retail sales were up 0.2 percent. Total retail sales increased 3.8 percent during the first 3 months of this year, a 1.7 percent increase compared to March of 2015.
Also pulling down total retail sales were sales of restaurants and drinking places, which declined 0.8 percent in March vs. February. For the first three months of the year, restaurant and bar sales increased 6.8 percent and were up 5.5 percent from March of last year.
Grocery store sales were flat in March.
There are limitations and caveats regarding the Census sales information above. The information is considered to be an advance report since it is based on a small initial sample. The reported numbers are subject to revision and are, in fact, frequently revised. With respect to the foodservice industry, the survey includes only restaurants and bars. Some of the data is adjusted for seasonal variations, holidays, and weekends but not for menu price changes.
Economic News This Week
- The Producer Price Index for demand fell 0.1 percent in March on a seasonally adjusted basis. Prices for final demand goods rose 0.2 percent while prices for final demand services dropped 0.2 percent. Core prices, that is, final demand goods excluding food and energy prices rose 0.1 percent for the month. Overall, final demand prices are down 0.1 percent for the past 12 months on an unadjusted basis. The “core” index (without food and energy) is up 0.9 percent for the last 12 months.
- The Consumer Price Index rose 0.1 percent in March. The food index fell 0.2 percent while the energy index rose 0.9 percent and the “core” index (all items less food and energy) increased 0.1 percent. In the 12 months ending in March the Consumer Price Index has risen just 0.9 percent. The index for all items less food and energy prices is up 2.2 percent. It appears that inflation is well under control.
- Industrial production decreased 0.6 percent in March. Manufacturing, mining and utility production all fell in the month. For the first quarter this year industrial production is down 0.2 percent. Capacity utilization decreased 0.5 percent in March, a rate that is 5.2 percentage points below its long run (1972-2015) average.
- The April Empire State Manufacturing Survey Index climbed 9 percentage points to 9.6, its highest level in more than a year. The new orders index edged up 2 percentage points to 11.1 while the Shipments Index stayed about even at 10.2 percent. Any number above zero indicates expansion.
- Initial jobless claims totaled 253,000, a decline of 13,000 for the week ending April 9. The 4-week moving average was 265,000, a decline of 250.
- The preliminary University Of Michigan Index for April declined to 89.7 from the final March reading of 91.0. The Current Economic Conditions Index declined slightly to 105.4 from 105.6 in March. The index of Consumer Expectations fell from 81.5 in March to 79.6 in April. A spokesman from the University of Michigan said the declines did not indicate a coming recession but seem to show consumers expect slower job creation.
Foodservice News This Week
- A White Castle executive says a $15 an hour minimum wage will be “catastrophic.” Referring to the recently enacted New York law that will raise the minimum wage first in New York City with the rest of the state on a slower phase in, he noted that about 30 percent of every sales dollar goes to pay hourly workers. Further, net profit at White Castle runs 1 percent to 2.0 percent. To deal with a $15 an hour wage would require menu prices to rise 50 percent.
- Foodservice is big in c-stores. Foodservice sales were the number two revenue generator in c-stores last year, accounting for 20.8 percent of all inside volume. Tobacco products were first in inside sales with 35.9 percent of sales volume. But foodservice sales were tops in gross profit dollars at 33.7 percent. Packaged beverages were the second most profitable, accounting for 18.8 percent of stores’ gross profits while tobacco products were third with 16.8 percent of gross profit.
- Foodservice prices continue to outpace food at home prices. The March Consumer Price Index for food declined 0.2 percent. Prices for food at home fell 0.5 percent but prices for food away from home increased 0.2 percent. For the 12 months ending in March prices for food at home declined 0.5 percent while prices for food away from home increased 2.7 percent.
- C-store chains announce wage increases. Sheetz and Wawa, both based in Pennsylvania, will raise their starting wage rates to $10 per hour with shift supervisors earning $13 an hour. Sheetz will pay assistant managers $16 an hour with Wawa paying assistant general managers $17 an hour plus a “strong bonus program.” A third Pennsylvania chain, Rutter Farms, also has raised its starting wage to $10 an hour while the Indiana based Riker chain starts employees at $9 an hour.
- McDonald’s tests a “do it yourself” coffee kiosk. In two Chicago locations, a tablet-based kiosk allows customers to customize coffee drinks by selecting flavored syrups and milks. Customers can pay using the same tablet thus eliminating any involvement with McDonald’s employees.
- How will a minimum wage hike impact McDonald’s? Some analysts see it as neutral while others see it as negative. On the flip side a Wetzel’s Pretzels operator says the last two times California raised the state’s minimum wage, his same store sales increased 7 percent to 8 percent. He states that the minimum wage increases put more money in his customers’ pockets which drove sales more than enough to offset his salary increases. The potential problem is that there has never been a minimum wage increase of this amount before so some economists have pointed out this represents “uncharted territory.”
- Johnny Rockets goes modern. The chain dropped its 50’s appearance and adopted a fast-casual design with wooden finishes, pendent lighting and self-serve ordering kiosks for to-go orders. Also gone is the soda jerk look and paper hats along with spontaneous dancing. The staff will wear black or dark jeans with white button down collar shirts. The goal of the redesign is to lure more millennials while holding on to their core audience of families. The first of the new restaurants is in Syracuse, N.Y.
- Growth Chains: Hardee’s signed a franchise development agreement with the Pavilion Restaurant Group of Charlotte, N.C., for 124 restaurants in Florida and Ohio in the next 9 to 12 years. Dairy Queen plans to open 400 locations in California in the next 10 years. Smoke’s Poutinene plans to have 1,300 stores by 2020 with 800 of them in the US. Chick-fil-A will open 15 restaurants in Michigan. Dickey’s Barbecue Pit plans to open 4 restaurants in Oregon. Smashburger plans to open 15 restaurants in Georgia. Papa Murphy’s plans to open 10 units in Kansas and North Dakota in the next 10 years. Pie Five Pizza Company will open 5 restaurants in the Des Moines area. McDonald’s expansion into China, Hong Kong and South Korea will occur by selling the stores to private equity companies and operating as partnerships rather than as franchisees.
- Comparable Store Sales Reports. Just one chain reported their comp sales this week – Luby’s (All concepts up 2.2 percent, Luby’s Cafeteria up 3.2 percent, Fuddrucker’s flat and
Cheeseburger In Paradise up 4.2 percent.)
For details and same-store sales of other chains – Please Click Here for the Green Sheet.