Retail sales were disappointing in July. Wendy’s chief says restaurant prices are out of line compared to eating at home. Sysco reported substantial increases in both sales and profits. Knapp-Track shows casual dining sales were weak again in July. These stories and a whole lot more This Week In Foodservice.
Total U.S. retail sales were flat in July vs. June. Sales were up 2.3 percent over July of 2015 and up 2.8 percent over the first 7 months of 2015. Excluding automobile and automotive parts sales, retail sales were down 0.3 percent.
Unfortunately, sales at restaurants and drinking places were also down in July, falling 0.2 percent. Compared to July 2015, sales rose 5.0 percent and in the first 7 months of this year sales are up 6.5 percent over the same period last year.
Taken together, it now appears that restaurant sales are definitely turning soft.
As pointed out every month, the U.S. Census Bureau’s sales have to be evaluated with some caution and consideration. The report quoted above is termed “advance” in nature in that it is based on a small preliminary sample. After a larger sample is evaluated, the numbers can be adjusted and are frequently updated.
The U.S. Census Bureau only includes restaurants and bars in the study. Roughly one-third of what most people define as foodservice is not included in the report. Excluded are hotels, motels, resorts, clubs, employee feeding, healthcare, schools, colleges, and military feeding.
Some, but not all, of the data is adjusted for seasonal variations, holidays, and weekends. The sales figures are not adjusted for menu price changes.
Economic News This Week
- Initial jobless claims fell by 1,000 to 266,000 for the week ending August 6. The four week moving average declined by 500 to 262,750. This report has been remarkably consistent in showing that there have not been any trends towards increasing layoffs.
- The JOLTS study from the Bureau of Labor Statistics showed little change in June with job openings at 5.6 million up from 5.5 million in May, hires up to 5.1 million from 5.0 million and separations even at 4.9 million. The number of quits – those people separating from their jobs voluntarily – was steady at 2.9 million in June vs. May.
- The Producer Price Index for final demand fell 0.4% In July after rising 0.5 percent in June and 0.4 percent in May. The final demand index is down 0.2 percent in the last 12 months. Final demand goods prices fell 0.4 percent in July. Excluding prices for food and energy – the so called “core” index – was flat in July. Final demand services were down 0.3 percent.
- Productivity decreased 0.5 percent on an annual basis in the second quarter this year as the Bureau of Labor Statistics calculated output increased 1.2 percent and hours worked increased 1.8 percent. Unit labor costs increased 2.1 percent in the second quarter with a 1.5 percent increase in hourly compensation and 0.5 percent decline in productivity.
- The NY Federal Reserve’s Empire State Manufacturing Survey indicated that manufacturing activity fell in July, dropping 5.0 point to minus 4.2. The New Orders Index rose 3.0 points to 1.0. Any number above zero shows increasing activity. Any number less than zero shows declining activity. The Employment Index rose 3.0 points to minus 1.0. The Shipments Index was the most positive finding of the study, rising 8.0 points to 9.0.
- The Institute for Supply Management’s Non-Manufacturing Index Fell in July by 1.0 percentage points to 55.5 percent. Any number over 50 indicates expansion. The New Orders Index edged up by 0.4 percentage points to 60.3 while the Employment Index decreased by 1.3 percentage points to 51.4. Of the 18 non-manufacturing (service) industries that the institute studies, 15 reported growth. Accommodations & Foodservice was the third fastest growing sector.
- Consumer credit increased 4.1 percent in June on a seasonally adjusted annual rate basis. The Federal Reserve projected that revolving credit (mostly credit card debt) rose 9.7 percent, which is an unusually high rate. Non-revolving credit (auto loans, student loans, etc.) increased by 2.1 percent, which is significantly lower than usual.
- Nielson’s World Consumer Confidence Survey was flat in the second quarter at 98, the same finding as the first quarter and 2 points higher than in the second quarter of last year. Philippines’ consumers were the most optimistic at 132. People in the U.S. were fourth most optimistic with a score of 113, while South Korean consumers were the least confident at 45.
- The Gallop Poll’s Economic Confidence Index is trending up, with the index staying at minus 10 for the second week in a row. That is the highest the index has been since early March. The index measures the difference between consumers who feel the economy is good versus those who think it is weak. Thus, a minus 10 means 10 percent more people believe the economy is not good than those who believe it is good.
- The University Of Michigan’s Survey of Consumers inched up 0.4 percent in August to 90.4 from the final July reading of 90.0. However, the index of Current Economic Conditions fell to 106.1 from 109 in the July survey. The Index of Consumer Expectations for August rose to 80.3 from 77.8 in July. The report states that concern over Brexit is fading but younger consumers cited higher living expenses, plus the upcoming election, is causing uncertainty.
Foodservice News This Week
- Is the No. 1 problem for restaurants menu prices? Wendy’s CEO Todd Penegor seems to think so. More specifically, as reported by Scott Hume, publisher of Burger Business, Mr. Penegor said the reason for the slowdown in sales “…appears to be the continued gap between the cost of eating at home and the cost of dining out…” The data for the cost of food at home versus the cost of food away from home is reported every month as part of the Consumer Price Index and shows that restaurant prices have increased roughly three times as much as grocery prices. Common sense would indicate sooner or later customers will catch on and reallocate their food dollars. For the foodservice market, Mr. Penegor seems to believe sooner may be now.
- Sysco reported excellent sales and earnings for the last quarter, with dollar sales and case volume both up 10 percent and earnings up 190 percent. Earnings per share were $0.38, up from $0.12 for the corresponding quarter last year.
- Knapp-Track reported weak sales in July. Malcolm Knapp’s data for the 50+ chains participating in his program shows same-store sales down 0.2 and customer counts down 3.4 percent, which would translate into a very high increase in check average of 3.2 percent. This is the highest monthly increase in check average since 2008 and is somewhat surprising given all the emphasis on value. The July results are actually an improvement over June, and on a one and two year basis. Knapp-Track data is courtesy of Bank of America Merrill Lynch.
- Chipotle’s new Tasty Made burger operation has drawn the ire of a Boston chain. Tasty Burger, with six units currently, has sent Chipotle a cease and desist letter noting not only the similarity in the names but an “unmistakably similar” logo as well.
- The Seattle City Council is considering a “secure scheduling” law that would require employers, such as fast-food restaurants, to schedule employees work days and times at least 14 days in advance. The law is quite complex and is being opposed by retailers – and even some foodservice employees – who like the flexibility of the current system. Seattle was one of the first cities to raise the minimum wage to $15 an hour.
- The Middleby Corporation reported sales rose for their quarter ending July 2. The Commercial Foodservice Equipment Group rose 11.1 percent to $321 million. Excluding acquisitions during the year, sales were up 5.2 percent and increased 6.9 percent without currency fluctuations.
- Wal-Mart opened a “culinary and innovation center.” The 12,000 square foot center is located in Arkansas and has 10 test kitchens, including replicas of bakery and deli kitchens. Wal-Mart uses the facility to develop new food ideas, including items for its store brand.
- Ruby Tuesday received a phone call during their earnings call from a Bud Fox from a Geneva Roth Holding Corporation asking if the death of a gorilla at the Cincinnati zoo effected the chain’s sales. The following caller was from Wells Fargo, who pointed out that both “Bud Fox” and the company he represented were straight out of the movie “Wall Street.”
- Corporate stirrings: Ruby Tuesday announced the closing of 95 “underperforming restaurants” as part of various initiatives to improve performance. As of May 31, Ruby Tuesday had 724 restaurants; 646 were company owned. The press release seemed to indicate the restaurants to be closed were all company operated.
- Meritage Hospitality Group Inc. announced the acquisition of 10 Wendy’s restaurants in the Oklahoma City area. This brings the company’s total Wendy’s to 18 in greater Oklahoma City. The cost of the purchase was not given in the press release.
- Growth chains: Domino’s has opened their 18,000 th restaurant, 3,000 of which were opened in the past 4 years. Ocean Prime, a brand of the Cameron Mitchell Group, will open restaurants in Naples, Florida and Washington, D.C. Dunkin’ Donuts has a development agreement with an existing franchisee for 5 locations in the Birmingham, Ala., area and a development agreement with another existing franchisee for 4 restaurants in the Montgomery, Ala., area, including a multibrand unit with Baskin Robbins. Wingstop plans to develop 100 restaurants in Saudi Arabia over the next 10 years. Papa John’s has an agreement with a partner firm to open 40 stores in Russia in the next 8 years. McAlister’s Deli will open 5 restaurants in Atlanta and 3 in Illinois. Wing Zone has opened their seventh location in the Chicago area with 2 more to follow.
- Comparable store sales reports: Ark Restaurants down 1.6 percent; B.J.s Restaurants down 0.2 percent; Bojangles up 0.2 percent; Brinker International Chili’s company owned down 1.8 percent and franchised down 2.1 percent, plus Maggiano’s down 1.7 percent; Carrol’s Restaurant Group up 0.7 percent; CEC Entertainment up 2.6 percent; Fogo De Chao down 1.6 percent; NPC International (Pizza Hut down 0.6 percent & Wendy’s down 0.3 percent); Peter Piper Pizza up 2.6 percent; Pollo Campero up 9.1 percent; Ruby Tuesday down 3.7 percent; Shake Shack up 4.5 percent; Wendy’s up 0.4 percent; and Wingstop up 3.1 percent.