Retail sales fell 8.7% in March, the steepest single month drop since the launch of the study in 1992, according to the U.S. Census Bureau.
Less than 2 months ago it would have seemed highly unlikely that foodservices and drinking place sales could decline by 26.4% in a single month but that’s exactly what happened in March. To put the decline into context, sales declining by a full percentage point represents a significant decline for this study. In contrast to the declines at foodservices and drinking places, food and beverage stores saw sales increase 25.65%.
When digesting this data, keep in mind from a foodservice perspective the study only surveys restaurants and bars. Not included in the survey are hotel, motels, resorts, employee feeding, airline feeding and schools K thru 12. Considering the shelter-in-place orders permeating the country, one can safely assume these operations face their own struggles. It is possible that some sectors are running at least even – C-stores, military feeding, nursing homes and senior living facilities. Also, these results are based on a small sample and may be revised when the sample is increased.
Finally, the data is adjusted for holidays and weekends but not for changes in menu prices.
Economic News This Week
- Initial-jobless claims declined by 1.37 million to a final level of 5.25 million for the week-ending April 11. The 4-week moving average hit 5.51 million, an increase of 1.24 million claims. Prior to the pandemic, the number of initial claims had been running in the low 200,000’s for several years.
- Since mid-March 22 million people have filed claims for unemployment benefits. The previous 4-week record was 2.7 million in 1982. And 22 million workers represents roughly 13% of the U.S. labor force. The good news is the number claims may have peaked two weeks ago. The bad news is it appears the layoffs have not yet ended.
- The N.Y. Federal Reserve’s Empire State Manufacturing Survey showed business activity plummeted in the region to -78.2 in April. This represents the lowest reading in the history of the survey “… by a wide margin,” per the Federal Reserve. New Orders fell to minus -66.3. Shipments fell to -68.1. Unfilled Orders fell to -16.8 points. The Number Employees was -55.3, a decline of 54 points. When asked about the future, manufacturers said they only expected a small improvement.
- The Philadelphia Federal Reserve’s Manufacturing Business Outlook Survey showed continued weakening in regional manufacturing during April. The index was down 56.6 points this month. That comes on the heels of a 12.7-point decline in March. The percentage of firms reporting falling activity was 60% vs. just 4.0% reporting growth. The New Orders Index fell to 70.9 and the Shipments Index fell to -74.1. Unfilled Orders fell to -13.5. The Number of Employees Index dropped to -46.7.
- Production fell 5.4% in March. The Federal Reserve, attributes the decline to the coronavirus disease. Manufacturing output fell 6.3% with mining output down 2.0% and utility output down 3.9%. The indexes for total industrial production and manufacturing were at their lowest since 1946. Capacity Utilization for the industrial sector was 72.7 in March, a 4.3-point decline.
- March privately owned housing starts declined 22.3% from February on a seasonally adjusted annual rate basis, per the U.S. Census Bureau. Building permits issued in March for privately owned housing units declined 6.8% from February but were up 5.0% over March 2019.
- The Conference Board’s Leading Economic Index declined 6.7% in March for a final reading of 104.1. The Conference Board spokesman said this was the largest decline in the 60-year history of the index and “suggests that the U.S. economy will be facing a very deep contraction.”
Foodservice News This Week
- The NPD Group estimates 97% of U.S. restaurants are under some level of restrictions with most prohibited from offering dine in service. For the week ending March 29, the number of customer transactions at restaurants were down by 42% compared to the same week a year earlier. NPD says prior to the COVID-19 outbreak on premise dining accounted for 52% of restaurant sales dollars with off premise taking the remaining 48%.
- While the Payment Protection Plan earned plenty of attention, there was a little-discussed provision tucked in the stimulus legislation that could benefit restaurants down the line. Specifically, it expands the tax deduction for various property improvements to 100% of the cost, including remodeling projects and equipment purchases. The deduction becomes applicable right away, not over many years, as was the case before. Apparently, this corrects a typo in a previous tax bill and it’s something the National Restaurant Association has wanted for a while.
- Shake Shack returned a $10 million government issued loan. The chain’s CEO said Shake Shack has access to sources of capital that others do not and he thinks every restaurant should have an opportunity for assistance.
- Bloomin’ Brands hangs tough. To date, the parent company has not laid off any employees as a result of the COVID-19 pandemic. Further, any employee diagnosed with illness due to the virus will continue to be paid, have access to the employee assistance program and Bloomin’ Brands funded 100% of benefit premiums for people not working and receiving relief pay. Also, Bloomin’s take out business has nearly tripled every week since March 20.
- Starbucks will continue to monitor and adapt to market conditions as the coffee chain enters the next phase of its recovery. The system will rely essentially on human judgement and will in effect be made on a store by store basis.
- Despite an ongoing pandemic, McDonald’s and its franchisees continue to have their differences. One area of contention is corporate support during the COVID-19 crisis. McDonald’s has offered to defer rents and other fees while its independent franchise group wants the charges eliminated for three months.
- San Francisco places a limit on the fees third-party delivery firms can charge restaurants. The city’s mayor has ruled that delivery fees cannot exceed 15% as long as the coronavirus crisis is in effect. The ruling effects both independent and chain operators. Questions have been raised about the legality of the move and if some charges will be passed on to consumers.
- Tilman Fertitta, owner of multiple restaurant brands including Landry’s, is usually the big bucks guy looking to buy. Now Fertitta seeks cash to keep his empire afloat, per published reports. Specifically, he wants to borrow $250 million and is willing to pay 15% interest to the lender. Fertitta, who is estimated to have a net worth of $4 billon, is reported to put $50 million of his own money into the company as well. There is some speculation that Mr. Fertitta was caught in a vulnerable position by the COVID-19 pandemic having just made several pricy acquisitions.
- Grubhub’s earnings report was disappointing. The food delivery service attributes its problems to poor results in New York City, which experienced a large number of COVID-19 cases that led residents to leave town for the time being and restaurants to cease operations, at least temporarily.
- Red Robin Gourmet Burgers has closed 35 restaurants. The chain has also reduced pay and is negotiating with landlords to reduce payments. Red Robin has seen significant increases in their off-premises sales.
- FirstFood Global Restaurants, parent company of the Bravo and Brio Chains, may have two suitors. The first offer was from Earl Enterprises who owns Planet Hollywood and Buca di Beppo. Another offer may be on the way from Serene Investments.
- Restaurant survival stories will likely be plentiful coming out of the COVID-19 crisis. Here is one inspiring incident as reported by Cincinnati Magazine. Stephanie Webster, owner of two wine and cheese restaurants, faced with the same ugly task other operators had to deal with, namely, firing most of her staff. Her plan B was to change from a restaurant model to an E-commerce business and keep her entire staff. In 48 hours, the new system was up and running including the available inventories for both restaurants. So far it has worked and Ms. Webster has not had to dismiss anyone.
- Bloomin’ Brands will open its first free-standing Aussie Grill. A spinoff from Outback that includes a drive-up window, the 2,925 square foot restaurant will be in Lutz, Fla.
For restaurant chains same-store sales, please click here for the latest Green Sheet.