This Week In Foodservice

Jerry Stiegler aggregates key industry information and provides brief analysis to help foodservice professionals navigate the data.


This Week in Foodservice: Weak Casual Dining Sales, Redesigns Pay Off in Sales, Automats Reinvented and Naugles’ Attempt to Grow

Weekly roundup of news that's worthy of a second glance: Knapp-Track shows weak casual dining sales – again; decline in U.S. restaurants; restaurant redesigns pay off in higher sales; old automats reincarnated; and the Attempt to Revive Naugles.

The Knapp-Track Report continues to show weak performance by the 50-plus chains that participate in Malcolm Knapp’s sales research. These casual-dining chains collectively saw same-store sales in August decline by 1.4 percent vs. August of last year while guest counts fell 3.6 percent. This would imply that check average rose 2.2 percent. (Last week The NPD Group reported rising menu prices are having a deleterious affect on restaurant sales as some consumers feel they are being priced out of the market.)

Mr. Knapp found that all four weeks in August experienced a decline in comparable store sales and traffic counts. He pointed to the Olympics as having an effect on the casual restaurant market, as well distraction caused by the presidential election. He reiterated his theory of “allocation nation,” which holds that consumers are carefully choosing where to spend their dollars. The belief is that people are choosing to buy big-ticket items and diverting money from more everyday activities like eating out. Mr. Knapp’s data is courtesy of Bank of America Merrill Lynch.

Economic News This Week

  • States, organizations sue U.S. over new overtime pay regulations. State Attorneys General representing 21 states, along with a coalition of more than 50 business groups led by the U.S. Chamber of Commerce, have filed suits to block the Obama administration’s revised rules on overtime pay. The new regulation will double the threshold pay level for overtime pay. Critics of the new regulation say it will cause workers’ hours to be cut, reduce hiring of full-time staff and switch salaried workers to hourly pay. The Texas attorney general stated that the rule is an attempt on the part of the president to unilaterally rewrite the law that “… may lead to disastrous consequences for our economy.”
  • Initial jobless claims fell by 8,000 to 252,000 for the week ending Sept. 17. The less volatile 4-week moving average fell by 2,250 claims to 258,500. This important indicator of the U.S. job market continues to look very good.
  • Existing home sales fell by 0.9 percent in August to a seasonally adjusted annual rate of 5.33 million. This is the second straight month of decline, despite continuing low interest rates. The National Association of Realtors stated that rising home prices and a low number of homes being offered for sale are having a negative impact on the real estate market. The spokesman said that recent jobs growth “… should be creating a sustained demand for home purchases.”
  • August housing starts fell 5.8 percent from July but were up 0.9 percent from August of 2015. Single family housing starts fell 6.0 percent from July. Building permits in August edged down 0.4 percent from July and were down 2.3 percent from August last year. The number of single family permits issued increased 3.7 percent over July.
  • Home builders confidence rose sharply in September. The National Association of Homebuilders/Wells Fargo Housing Market Index increased from 59 in August to 65, the highest reading since October of 2015. (Any number over 50 indicates increased confidence.) A spokesperson for the NAHB said they expect the market to make gradual gains for the rest of this year and into 2017.

Foodservice News This Week

  • The Number of Restaurants in the U.S. fell 1.0 percent. The ReCount study from The NPD Group, effective on March 31, 2016, said there were 624,301 restaurants in the U.S., a decline of 8,000 units from March of 2015. The number of chain restaurants was virtually flat while the number of independent restaurants fell 3.0 percent. Full-service independent units were down 3.0 percent and quick-service independent restaurants were down 2.0 percent. The NPD Group attributes the decline in large part to the stalled growth in customer traffic and does not anticipate significant unit expansion for a while.
  • Sit-down restaurants are losing out to convenience and affordability according to an article from The Washington Post. The story presents sales data from Ruby Tuesday, Applebee’s and Chili’s to show how full-service sites are suffering at the hands of fast feeders. The article quotes Darren Tristano, Technomic Inc., saying consumers are “…looking for convenience, quality, portability and healthfulness.” The problem is that fast-food restaurants are not known for either quality or healthfulness. And, the article doesn’t mention that many of the fast-food operators have shown weakness in their sales performance as well.
  • Fast-food restaurant makeovers pay off. Almost every week this newsletter reports on a chain redesign. A recent article in Adweek asserts that consumers believe fast-food menus have improved, so it is imperative to upgrade restaurant design as well. Two examples of redesign are KFC, whose new look earned a 3.0 percent increase in sales, and Arby’s, which reported a 15 percent jump in sales in its redesigned units. The article didn’t discuss back-of-the-house changes but we know that many operators use front-of-the-house makeovers as an opportunity to upgrade and improve kitchens as well.
  • Remember the old automats? Menu items were displayed behind small glass doors. Patrons would feed coins into a slot next to the food (the first automats head to the Smithsonian to find one only took nickels), the little door would open and the food could be removed. When the door was closed, the shelf spun around with another dish and an automat employee on the other side of the wall would replace the item. The automat is back in 21st century style, called Eatsa. Customers place their order via a mobile app or an in-store iPad and when the food is ready a number appears next to their name that corresponds to a glass cubby. The box slides open and customers have their food. Eatsa has 4 locations in California and is planning to open in Washington D.C.
  • Taco and burger shop Naugles, which has had a very choppy history, may be on the way back. After being acquired by Del Taco, the restaurants were closed or converted to Del Taco locations, which encouraged a gentleman named Christian Ziebarth to successfully claim the name, contending Del Taco had abandoned the trademark. He has signed a deal with Fransmart to franchise Naugles with a plan of adding 100 Naugles in the next 5 to 6 years and a goal of eventually having 1,000 units. Mr. Ziebarth currently has one restaurant, which opened last year. 
  • McDonald’s McCafe in Paris offers a wide array of food – including club sandwiches, toasted bagels with salmon, pastries, salads, and soup. Not on the menu? Big Macs, Quarter Pounders or fries.
  • Pizza Hut’s grilled cheese crust caused industry watchers to recall the 1995 rollout of Pizza Hut’s original stuffed crust pizza. The spokesperson in the commercials was none other than Donald Trump.
  • The Dunkin’ Donuts franchisee in the greater Buffalo area has closed 13 of its 26 units. The story did not give any reason for the closure, but the Tim Horton’s sites in the area are recognized to be very strong. 
  • Corporate Stirrings: JAE Restaurant Group has purchased 97 Wendy’s restaurants in South Florida. JAE now owns a total of 177 restaurants in Florida, Texas, and New Mexico. The cost of the acquisition was not given. Ruby Tuesday has sold its headquarters building on Church Street in Marysville, Tenn., and will consolidate its Restaurant Support Center on Broadway Ave. The chain’s CEO said the move “…will streamline our cost infrastructure…” Fast Sandwich LLC, a major Jimmy John’s Gourmet Sandwich Restaurant franchisee in the Chicago area, has acquired JTY Investments, a Jimmy John’s franchisee in the Orlando area. The deal was made with the backing of private equity firm Atlantic State Capital.
  • Growth Chains: 7 Eleven’s U.S. company plans to open thousands of stores, growing from its current 8,500 sites to 20,000 locations. Papa Murphy’s will open 6 locations in the Albuquerque, N.M., area and at least 7 franchised locations in Southeast Texas. Del Taco will open 5 restaurants in the San Diego market. Texas Chicken plans to open 65 international stores in 2017 and then open 100 international stores a year beginning in 2018. Wendy’s franchisee JAE Restaurant Group plans to open 5 Wendy’s in South Florida in the next 6 to 8 months with a goal of adding 8 to 10 restaurants a year across all of its markets. Bruster’s Real Ice Cream has signed franchise agreements for 15 stores, including locations in Georgia, Louisiana, Mississippi and Pennsylvania. Huddle House plans to open 100 restaurants in the next 5 years. BurgerFi will open a unit in London and plans a total of 10 stores in the UK.

For details and same-store sales of restaurant chains, see the Green Sheet.