The NRA’s March Restaurant Performance Index was virtually unchanged from its February study. The U.S. economy declined in the first quarter with Gross Domestic Product falling 1.4 points. McDonald’s quarterly financials showed mixed results. Circle K’s parent, Alimentation Couche-Tard, is in talks to acquire British-based EG. These stories and more This Week in Foodservice.

The National Restaurant Association’s Restaurant Performance Index was little changed from February, dropping just 0.1 point. The Current Situation Index at 104.6 was identical to the February reading with all four industry indicators (Same Store Sales, Customer Traffic, Labor and Capital Expenditures) in expansion territory.

The other major component of the RPI, the Expectations Index, declined just 0.2% from February with 61% of operators expecting sales to be higher in the next 6 months compared to the identical 6-month period the year before.

As far as the survey respondents’ willingness to spend money on their businesses, 65% of operators said they made a capital expenditure for equipment, expansion or remodeling in the last three months. This is down from 71% in the February study.

When asked about future plans, 63% said they will be making a capital expenditure in the next six months for equipment, expansion or remodeling. This is down from 71% who reported similarly last month, but at the same time, in the last six consecutive months, 60% or more operators have said they plan on making a capital investment.

This may not be an exciting report for March, but the numbers continue to forecast modest expansion.

Economic News This Week

• The Bureau of Economic Analysis had an ugly surprise when it reported real Gross Domestic Product declined at an annual rate of 1.4% in the first quarter of this year. The decline follows an increase of 6.9% in the fourth quarter of 2021. Most forecasts for GDP had been in the range of increasing between 0.5% and 1.0%. Economists say with the negative number was gloomy, consumer spending has accelerated and “the economy is not falling into recession.” The Bureau of Economic Analysis also reported real disposable income decreased 0.4% in March and real personal consumption expenditures increased by 0.2%. Personal Income and Outlays, March 2022 | U.S. Bureau of Economic Analysis (BEA)
• New orders for durable goods (goods that last three years or longer) increased 0.8% in March from February. This followed a 1.7% decrease in February. New orders for durable goods have been up five of the last six months. Shipments of durable goods in March rose 1.2% from February. Durable goods shipments have been up 10 of the last 11 months.
• The U.S. Census Bureau reported that new single-family home sales in March were at a seasonally adjusted annual rate of 763,000. This is 8.6% below the February rate and down 12.6% from March 2021.
• The University of Michigan Index of Consumer Sentiment rose 9.8% to 65.2 in April over the final March reading of 59.4. The Current Economic Conditions Index showed an improvement of 2.2 points from 67.2 in March to 69.4 in April. The Index of Consumer Expectations was responsible for most of the rise in the benchmark index with an increase of 8.2 points to 62.5 in April. But the April index is still lower than any month in the past decade. Consumer sentiment has been hammered, first by the pandemic and now by inflation and the Russian invasion of Ukraine.

Foodservice News This Week                                            

• McDonald’s CEO calls the operating environment “…increasingly complex and uncertain…” Global comparable same-store sales increased 11.8% while US comparable store sales were up 3.5%. Its U.S. comparable sales rise was attributed to strategic menu price increases, strong marketing promotions featuring core menu items and growth in digital channels, which continued to benefit from the prior year's launch of the company’s loyalty program. In other words, sales were up because of price increases. If they go to that well too often customers will rebel. But labor costs are up 10% from last year and McDonald’s expects food and other costs to be up 12% to 14% this year.
• McDonald’s reveals its financial adjustment for the company’s shutdown in Russia. The hamburger giant is evidently sticking to its original plan of closing its restaurants but continuing to pay its employees. McDonald’s has allowed a charge of $27 million for continuing to pay employees as well as lease costs and supplier payments. In addition, the company projects it will cost $100 million in inventory that will likely be disposed of because the restaurants are closed. It is extremely likely that every company that shut down its Russian businesses will also be making changes and taking write-offs.
• Alimentation Couche-Tard Inc., the parent of Circle K, is in talks with British retailer EG Group. Reports are that the talks are not going smoothly with the major sticking being price so the deal may not happen at all. The Wall Street Journal projects if the two firms do get together the combined companies will reach over $70 billion in revenue and 21,000 c-stores, fast-food operations, gas stations and grocery stores.
• The Noodles & Company has tried franchising in the past only to discontinue it. Now they have announced they are seeking franchisees again.
• Is Chick-fil-A a public hazard? The popular chicken chain’s success has led to some problems, namely traffic problems with a line of cars waiting in the drive-thru lane backed up onto the street, snarling traffic and potentially causing accidents. Businesses in Toledo, Ohio, and Beaumont, Texas, sued Chick-fil-A for blocking access to their parking lots. A judge in New Jersey ordered one Chick-fil-A restaurant to temporarily close its drive-up window when a restaurant next door complained cars couldn’t enter their parking lot. This writer has seen a Chick-fil-A near his home with cars backed up onto an access road. Another time the same location’s parking lot was filled, so people were parking in the lots of other stores and walking back to the Chick-fil-A. A non-scientific study revealed similar situations can be found in a lot of places. Possible ways to fix the problem include speeding up drive-thru service, having a traffic control person direct car flow and/or redesigning the drive-thru lane to handle more cars. This later change might require future Chick-fil-A restaurants to be built on larger sites.
• Growth chains: The Cheesecake Factory, currently with 208 locations in the U.S., wants to grow at 7% a year and feels it can support 300 stores. Add to that ambition growing its 29-unit North Italia brand to 200 stores. Little Caesars is looking to expand in the Buffalo, N.Y., area, hoping to add 11 stores. Teriyaki Madness has signed a 35-unit franchise deal with Chris McMillan, a franchisee of Sonic Drive-In, RibCrib and Big Chicken.
• Comparable store sales reports: McDonald’s up 3.5%.

For the most recent comparable store sales reports, please click here for the latest Green Sheet.