This Week In Foodservice

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

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Restaurant Industry’s Recovery Reverses

Restaurant industry’s recovery reverses. DoorDash gets into the meal kit arena. Krispy Kreme makes a strategic investment north of the border. These stories and more This Week in Foodservice.

Has the restaurant industry’s recovery from the pandemic hit a speed bump? The National Restaurant Association says yes, and the industry needs more help from Washington, D.C. The association surveyed its members to provide a better look at the business climate. Key points from the survey of NRA members shows:

  • 78% of operators say their restaurant experienced a decline in customer demand for indoor, on-premises dining in recent weeks because of the delta variant spike.
  • 63% of operators say their sales volume in August, historically one of the busiest months for restaurants was lower than it was in August 2019.
  • 91% of operators are paying more for food; 84% have higher labor costs; 63% are paying higher occupancy costs. Naturally, with costs increasing, profitability is declining. Along those lines, 85% of operators report smaller margins than before the pandemic.
  • 78% of operators say their restaurant doesn’t have enough employees to support current customer demand.
  • 95% of restaurant operators say their restaurant experienced supply delays or shortages of key food or beverage items during the past three months.

Additionally, 44% of operators think it will be more than a year before business conditions return to normal and 19% believe they never will, per data from the NRA.

“Our nation’s restaurant recovery is officially moving in reverse,” said Sean Kennedy, executive vice president of Public Affairs for the National Restaurant Association. “The lingering effects of the delta variant are a further drag on an industry struggling with rising costs and falling revenue. We support many of the goals of the Build Back Better Act, but the legislation is too large and too expensive a check for small businesses to take on. Restaurants still need help today and overwhelming them with costly new obligations will only prevent progress in turning the tide of recovery.”

These developments prompted the NRA to send a letter to congressional leaders voicing concern over a variety of legislative issues on the table.

Economic News This Week

  • Initial jobless claims totaled 362,000, an increase of 11,000 for the week ending Sept. 25, 2021. The 4-week moving average was 340,000, an increase of 4,250 from the previous week.
  • Real gross domestic product increased at an annual rate of 6.7% in the second quarter of 2021, per the third estimate released by the Bureau of Economic Analysis. This represents a .4% increase compared to the first quarter. The BEA’s third GDP estimate is based on more complete source data than was available for the second estimate. In the second estimate, the increase in real GDP was 6.6%. Upward revisions to personal consumption expenditures, exports, and private inventory investment were partly offset by an upward revision to imports.
  • The Chicago Business Barometer slipped to 64.7 in September, its lowest level since February. Among the main five indicators, Order Backlogs saw the largest decline, followed by Supplier Deliveries and New Orders. Only Employment increased through the month. Order Backlogs dropped 20.5 points for a 6-month low of 61.1. Companies attributed the decline to supply shortages that continue to weigh on production. Supplier Deliveries through September fell 11.6 points to a level of 81.2, the lowest since April. Firms report worsening port congestion and ongoing problems with the ocean, rail trucking, and even air cargo. New Orders softened through the month, falling 3.4 points for a total of 64.4, the lowest since March. Businesses said that was linked to raw material shortages and a low supply of critical components like semiconductors.
  • Consumer sentiment improved in September, per data from the University of Michigan. Its Index of Consumer Sentiment climbed to 72.8 from 70.3 in August. Despite this improvement, the sentiment is down 9.5% from the same period last year. Driving this increase were upticks in both the Current Economic Conditions Index, which grew to 80.1 in late September from 78.5 in August, and the Index of Consumer Expectations, which grew to 68.1% from 65.1% in August.
  • Manufacturing activity expanded for the 16th consecutive month in September as the Manufacturing PMI registered 61.1%, an increase of 1.2% from August, per the Institute for Supply Management. The New Orders Index was unchanged from August at 66.7%. The Production Index registered 59.4%, a decrease of 0.6% from August. The Prices Index came in at 81.2%, up 1.8% from August. The Backlog of Orders Index totaled 64.8%, which is 3.4% less than August. The Employment Index returned to growth with a reading at 50.2%, which is 1.2% greater than August. All the six biggest manufacturing industries — Petroleum & Coal Products; Computer & Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Transportation Equipment, in that order — registered moderate to strong growth in September.
  • Total construction spending totaled $1.58 billion in August 2021, which was virtually unchanged from July, per data from the S. Census Bureau. The August figure represents an 8.9% increase over the same month in 2020. During the first eight months of this year, construction spending amounted to $1.03 billion, 7.0% greater than the same period in 2020.

Foodservice News This Week

  • The National Restaurant Association’s Restaurant Performance Index fell to a 6-month low in August. The 104.2 reading in August was down from 105.4 in July. The Current Situation Index stood at 104.7 in August, down 1.5 points from July and the lowest reading since March. Although the sales, traffic and labor indicators were somewhat softer than recent months, they remained elevated in historical terms due to the dampened early-pandemic comparisons. As result, the Current Situation Index is still not a direct reflection of the overall health of the restaurant industry, per the NRA. The Expectations Index, which measures restaurant operators’ 6-month outlook for 4 industry indicators, stood at 103.7 – the lowest level in 7 months. Restaurant operators’ outlook for sales growth and the economy is somewhat dampened from recent months, but a solid majority of operators continue to plan for capital expenditures.
  • Iconic Chicago-based pizza chain Lou Malnati’s has a new investor. Meritage Group acquired a stake in the chain from BDT Capital Partners, the Chicago-based investment firm that bought into the company five years ago. Terms of the deal were not disclosed. Brothers Marc and Rick Malnati remain the two largest shareholders of the company their father started 50 years ago, per published reports.
  • Krispy Kreme singed a deal giving it majority control of franchisee and operator Krispy K Canada. Operating partners Christopher Lindsay and Kelcey Hamaker will remain as co-CEOs once the transaction is complete and will continue to manage the day-to-day operations of Krispy K Canada shops. In a statement, Krispy Kreme says this “investment reflects its confidence in the strength of Krispy K Canada’s business, the opportunity to expand its omnichannel strategy in the region and the current Canadian leadership team.” This agreement marks a milestone in Krispy Kreme’s strategic transformation, driven in large part by increased control over its operations. Following this transaction, Krispy Kreme will control 75% of sales across its global network. With just 11 points of access across the country today, Canada represents an opportunity for expansion. By comparison, the United Kingdom and Australia each have more than 1,000 points of access, per Krispy Kreme.
  • Dream Dinners partnered with DoorDash to make its family meal kits available on-demand for the first time. Dream Dinners operates 69 franchised and company-owned local kitchens in 22 states.
  • Growth Chains: Brooklyn Dumpling Shop plans to open at least five locations in Florida, courtesy of a development deal with franchisee Marc Silverstone. The chain burst onto the scene in 2020 with aggressive development plans that call for growing to 250 units in two years. MOOYAH Burgers, Fries & Shakes plans to open 15 new locations across Palm Beach County, Fla., over the next 10 years as part of a development agreement with franchisee Marc Verderame. Papa John’s plans to open 100 units across the state of Texas by 2029, thanks to a development deal inked with Sun Holdings. PDQ restaurants’ plans to take the concept abroad continue to take shape. A master franchise agreement gives Dubai-based EIC the chance to open and operate PDQ locations across 40 countries. The companies’ plan to open 15 PDQ locations overseas in the next 5 years.