A cautionary tale about mobile apps. Despite strong sales, rising expenses force some New York City restaurants to close. Danny Meyer invests in two new concepts. McDonald’s CEO looks to technology to drive business improvements. These stories and a whole lot more This Week In Foodservice.  

Mobile apps are where it’s at. Restaurants that don’t have one have to get one.

It certainly makes sense. People are ordering everything on their mobile devices. Look at Amazon and hundreds of other operations. It makes sense for restaurants. Rather than have an employee manning a phone, the whole order just appears in the restaurant kitchen like magic. What could be simpler? There doesn’t appear to be a downside.

That said, recently Starbucks reported that visits to their stores were down in the last quarter. Part of the blame fell on the giant coffee chain’s change in its loyalty program, which is now based on dollars spent rather than on number of transactions. But, Starbucks also said that the increase in number of orders from mobile apps have caused “operational challenges” at the pickup site. The company noted that the number of locations that received more than 20 percent of its transactions from mobile orders doubled to 1,200 in the last quarter. Howard Shultz, Starbucks CEO, said that this is a great problem to have since they know how to solve it.

Meanwhile, it has been reported that the crowd of mobile customers are causing some walkup customers to leave without ordering.

A long time ago a very successful foodservice operator stated that nothing is ever simple in the foodservice industry. 

Economic News This Week

• Fourth quarter gross domestic product was 1.9 percent, per the advance estimate from the Bureau of Economic Analysis. This was down from the third quarter’s +3.5 percent GDP growth, the strongest increase in 2 Years. It is also below the consensus estimate of +2.2 percent. Pulling the GDP down was a decline in the trade deficit, which in part was caused by the strong U.S. dollar. The Bureau cautions that the advance estimate is based on incomplete data and is subject to change as more information becomes available.
• Initial jobless claims climbed to 259,000, an increase of 22,000 in the Department of Labor’s advance estimate for the week ending Jan. 21. The 4-week moving average was 245,500, a decline of 2,000. That is the lowest the average has been since Nov. 3, 1973. 
• Personal income rose 0.3 percent in December while personal consumption expenditures increased more sharply by 0.5 percent. It is encouraging to see consumers spending more.
• Existing home sales declined 2.8 percent in December to 5.49 million on a seasonally adjusted annual basis. With the slide in December, existing home sales were up just 0.7 percent from a year ago. The National Association of Realtors stated that rising interest played a role in the decline but also said the supply of homes on the market fell to 1.65 million, which is lowest number since the NAR began tracking the inventory of existing homes for sale in 1999. 
• Sales of new single family homes fell 10.4 percent in December from November to a seasonally adjusted annual rate of 536,000. This is 0.4 percent lower than December 2015 but for the year of 2016 single family home sales are estimated by the Census Bureau to be up 12.2 percent from 2015. 
• The Conference Board Leading Economic Index increased 0.5 percent in December, following a 0.1 percent increase in November and a 0.2 percent increase in October. A Conference Board spokesman said the data indicates the economy will continue growing at a “moderate pace, perhaps even accelerating in the early months this year.”
• New orders for manufactured durable goods fell 0.4 percent in December according to the U.S. Census Bureau’s advance estimate. Excluding transportation, orders increased 0.5 percent. Shipments of durable goods were up 1.4 percent, while unfilled orders fell 0.6 percent. Non-defense orders for capital goods —those goods used to manufacture other goods —rose 3.8 percent.
• The University of Michigan’s Index of Consumer Sentiment hit a 12-year high. The final reading for January was 98.5, up from 98.2 in December. The Current Economic Conditions Index inched down to 111.3 from 111.9 in December, while the Index of Consumer Expectations was up to 90.3 from 89.3 in December. The University spokesperson attributes the increase in consumer confidence primarily on political promises rather than on economic performance.

Foodservice News This Week

• Numbers don’t work for some New York City restaurants. Even though customer traffic is good, some successful restaurants continue to close because labor costs, rent and taxes are destroying the bottom line and operators feel they cannot raise menu prices enough to cover increasing expenses.
• Well-known New York restaurateur Danny Meyer takes on two concepts. Meyer’s Union Square Hospitality Group invested in Joe Coffee, a 13-unit New York-based coffeehouse, and plans to open a neighborhood cafe concept called Daily Provisions which will offer breakfast, sandwiches, and salads.
• McDonald’s to rely on technology to improve sales. The chain is testing “ordering ahead” through its website and its branded app. McDonald’s is also rolling out self-order kiosks. McDonald’s CEO Steve Easterbrook acknowledged other operations are further ahead of his company but said he “wants to get it right.” 
• The U.S. Department of Agriculture forecasts food at home and food away from home prices will continue to differ this year. The USDA updated its forecast for food at home prices, projecting a 1 to 2 percent increase for 2017. But the USDA still sees food away from home prices growing 2 percent to 3 percent this year. In 2016, food at home prices fell 1.3 percent while food away from home prices rose 2.6 percent. Thus, consumers will face higher restaurant prices compared to grocery store prices. The data was supplied by the Food Institute.
• Grown, an organic restaurant, will open another location, this one will be in an Orlando Walmart. Founded and owned by NBA star Ray Allen and his wife, Grown has two locations at the Dolphins’ Hard Rock Stadium in Miami Gardens. The company calls itself a fast-food restaurant for people who hate fast food. In addition to certified organic fare, the restaurant offers gluten free and locally sourced food. The Allens were inspired to open the chain by their son who suffers from Type 1 diabetes. 
• Corporate Stirrings: McDonald’s sold its Nordic operation to Guy Hands, chairman of British equity firm Terra Firma. The deal covers 435 restaurants in Denmark, Finland, Norway and Sweden. Hands will be a McDonald’s strategic partner and main franchiser in the four countries. Brinker International will spend $6 million for severance and other charges as the company eliminates 70 positions at Chili’s in the second quarter. Brinker expects the changes will save $5 million in pretax expenses during fiscal 2017 and $12 million annually after that. Restaurant Brands International has signed a master franchise agreement with a group of investors in Mexico to open Tim Hortons operations in that country. Tim Hortons has similar agreements in the Philippines and England. Capital Pizza, a major Pizza Hut franchisee with 86 restaurants in 7 states, has filed for Chapter 11 bankruptcy.
• Growth Chains: Newk’s Eatery will open 40 restaurants in Northern Texas, Florida, Georgia, Northern Virginia, and Indianapolis. Pizza Hut plans on expanding to 20,000 restaurants by 2020 with the number of U.S. locations rising to almost 8,500 from the current 7,400. Huddle House will open three restaurants in South Carolina. Firehouse Subs will open 45 restaurants in Mexico in the next 5 years. PizzaRev will open three locations in Memphis. Wingstop has opened its 1,000th unit and is aiming for 2,500 in the U.S.
• Comparable Store Sales Reports: Arby’s up 3.8 percent, Brinker International (Chili’s company-owned locations declined 3.3 percent, Chili’s franchised locations declined 3.5 percent, and Maggiano’s locations declined 0.8 percent), Luby’s (Overall, down 2.3 percent; on a brand by brand basis, Luby’s Cafeteria declined 2.2 percent, Fuddrucker’s dipped 1.6 percent, Cheeseburger in Paradise’s data was not not available and combination units were down 2.3 percent), and Starbuck’s up 3.0 percent.

For details and same-store sales of other chains, read the Green Sheet.