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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This Week in Foodservice: Where Have all the Chain Restaurant CEOs Gone?

Why CEOs of restaurant chains continue to depart in large numbers. Hybrid restaurants – those mixing several styles of service – are increasing. Outback goes after the catering business. These stories and a whole lot more This Week in Foodservice.

Where have all the chain restaurant CEOs gone?

The real question is not where but why they have gone. Turnover in the executive suite at restaurant chains seems to be accelerating. Recently CEOs have left such blue chip brands as Starbucks, Domino’s, Denny’s, Red Lobster and Wingstop. Of course, it is always difficult to ascertain if executives jump, pushed or whether their parting was truly mutual.

The Food Institute asked R.J. Hotovy, head of analytical research at Placer.ai, to look at what was going on among restaurant chains. Hotovy identified two major factors affecting chain executives. The first factor, to nobody’s surprise, was the fact that these have been the two most difficult years in the business as a result of the pandemic. This may have caused some firms to accelerate their succession plans.

The second factor is that it looks like the road ahead is extremely rocky. Hottovy points out that while the last two years have been tough it is going to be competitive in the future. For example, Kelli Valade, the CEO at Red Lobster, resigned after just eight months on the job.

CEOs will have to deal with myriad problems in the coming months. There is no escaping that inflation remains a major burden for every chain. While a few months ago rapidly escalating labor costs were the problem, now prices of just about everything a restaurant buys – food, real estate, utility prices – are going up. In some cases, they are rising by double digits.

Consumer tastes and preferences continue to change, too, driven in large part by people cooking at home. Operators have to elevate their menus without losing their customers who like their existing offerings. This balancing act can make or break a restaurant.

The number one concern of almost every chain CEO is, as always, labor-related issues. Attracting, training, motivating, and retaining employees has always been an issue for this industry and the current labor shortage has greatly exacerbated the problem. CEOs, particularly at smaller chains, have to deal with reduced store hours as well as store closures.

Unionization Has always been lurking in the background of the foodservice business but recent efforts to unionize restaurant employees have been better organized and financed, Starbucks is a case in point.  Most chain CEOs cringe at the idea of dealing with a union but the saying “never say never” may apply here.

Economic News This Week

  • Initial jobless claims totaled 172,250, a decline of 2,000 for the week ending April 16, per the U.S. Department of Labor. The 4-week moving average totaled 177.250, an increase of 4,500. Claims remain near a 50-year low.
  • Industrial production increased 0.9% in March and rose at an annual rate of 8.1% for the first quarter, per the U.S. Federal Reserve. Manufacturing output gained 0.9% in March. The index for utilities rose 0.4% while the index for mining advanced 1.7%. At 104.6% of the 2017 average total industrial production was 5.5% above its year-earlier level. Capacity utilization climbed to 78.3%, a rate that is 1.2 percentage points below its long-run (1972-2021) average.
  • Manufacturing improved in New York, per the Empire State Manufacturing Survey from The Federal Reserve Bank of New York. The General Business Conditions Index totaled 24.6, a 36-point surge. The new orders and shipments indexes showed significant advancement, too. While the number of employees Index fell, the average employee workweek index increased.
  • March's existing-home sales dipped 2.7% compared to February, per The National Association of Realtors. March sales declined 4.5% from the same period last year. March is the second month in a row that existing home sales declined. Rising mortgage interest rates along with inflation cutting into purchasing power are starting to take a toll on home sales, per a spokesperson from the NAR.
  • March housing starts increased 0.3% from February 2022, per data from the U.S. Census Bureau. This also represents a 3.9% increase from March last year. The number of building permits issued increased 0.4% over March and rose 6.7% from March of 2021.
  • The Conference Board’s Leading Economic Index for the U.S. increased 0.3% in March. This followed a 0.6% rise in the index in February. The index has increased by 1.9% in the 6-month period from September 2021 to March 2022. The Conference Board believes that economic growth will continue through 2022 and projects a 3.0% year-over-year growth in U.S. GDP. This is significantly lower than the 5.6% GDP rise from 2021 but well above the pre-covid trend.
  • The preliminary University of Michigan Survey of Consumer Sentiment unexpectedly advanced in April. The grew to 65.7 in April from the final March reading of 59.4. The current economic conditions index posted a 1.3-point increase for a total of 68.1. Driving the increase in consumer sentiment was the index of consumer expectations which rose 18 points from March. While the increase seemed encouraging a university spokesman pointed out the results were less than the January index and less than any prior month in the past decade.

Foodservice News This Week

  • Hybrid restaurants continue to multiply, per published reports. There are restaurants that have counter service for breakfast and lunch but have table service for dinner. Another approach has a grab-and-go section but table service for those eating in the dining area. And, of course, a number of full service operators are busy putting in drive thru windows. The game seems to be to serve consumers in every way the restaurants can.
  • Chipotle Mexican Grill created a $50 million fund to invest in early-stage technology companies, per published reports. Chipotle is the sole investor, at least initially, in the fund called Cultivate Next. As part of this initiative, the fast-casual chain is testing an artificial intelligence robot to cook its tortilla chips. The chain is also testing radio frequency identification to track inventory and ingredients through the supply chain. The burrito chain has invested in a self-driving robotic delivery company, too.
  • Outback Steakhouse’s management describes the chain’s past catering efforts as “virtually negligent.” Company leaders admit the percent of sales for catering was “tiny.” Then came the pandemic which forced the steakhouse chain to reexamine its strategy. Large catering orders increased dramatically during the pandemic and as a result all 481 Outback locations now have catering programs.
  • Restaurants remain mum on the impact of the shutdown in Russia. It is estimated that 600 western firms have scaled back their Russian operations or totally exited the country. The vast majority have not provided any information on the impact the loss of activity in Russia will have on their finances. McDonald’s announced its shutdown was temporary and the company continued to pay their employees but didn’t indicate if it planned to take a write-down or write off as a result.
  • Growth Chains: Black Bear Diner plans to have seven restaurants open in the state of Texas by October of this year.

For comparable store sales of other chains, please click here for the latest Green Sheet.

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