Another restaurant chain prepares to exit Russia. Ghost kitchens are spooky for some operators while an important growth vehicle for others.
Despite growing inflation, falling stock prices and a full-blown war raging in Ukraine, U.S. consumers continue to open their wallets as total retail sales increased in April, per the U.S. Census Bureau. In fact, most retail sectors, including foodservice and drinking places, saw sales increase.
Total April retail sales increased 0.9% over March, per the U.S. Census Bureau’s Advance Monthly Sales report. Total retail sales are up 8.2% from April last year and have increased 11.3% in the first 4 months of this year vs. the similar time period last year. The advance monthly sales report from March over February was revised up to 1.4% from 0.8%.
Sales at foodservice and drinking places increased 2.0% in April compared to March and 19.8% compared to April 2021. In the first 4 months of this year foodservice and drinking place sales increased by 25.4%. Advance monthly sales for foodservice and drinking place sales for March over February were revised up to 1.9% from 1.0%.
Economic News This Week
- Initial jobless claims increased by 21,000 for the week ending May 14, per the U.S. Department of Labor. This brought the total number of claims for the week to 218,00. The 4-week moving average was 199,5000, an increase of 8,250 from the previous week.
- Inflation is not done with us yet, warns The Food Institute. The most serious price increases have yet to work their way through the system to the consumer level, the CEO of The Food Institute told Bloomberg. But eventually, suppliers are going to have to pass the higher prices on.
- Instead of raising prices in response to higher food costs, operators could opt to serve smaller portions. In this scenario, the menu price stays the same but instead of a dozen chicken wings, customers get ten. Of course, some restaurants may choose to both shrink portions and raise prices.
- The Conference Board’s Leading Economic Index declined 0.3%. This snapped a streak of two consecutive months of increases. The April decline was mostly the result of weak consumer expectations and a drop in housing permits.
Foodservice News This Week
- The U.S. Senate’s failure to approve funding for the Restaurant Revitalization Fund could lead to thousands of restaurants closing their doors for good. The Bill’s Supporters could not muster enough votes to break the filibuster. The backers of the bill had 52 votes but under Senate rules, 60 votes are necessary to stop a filibuster. The issue, it appears, centered on where the money to replenish the RRF should come from. Some Senators wanted to appropriate more money for the RRF while others to reallocate money from other COVID relief programs to support restaurants. “While there are valid questions about government spending and inflation, restaurants should not be caught in the crossfire,” said Sean Kennedy, executive vice president of public affairs for the National Restaurant Association in a statement. As a result of this lack of funding, some now estimate as many as 60,000 restaurants may fold in the next year.
- Starbucks is the latest restaurant chain to pull out of Russia. The company will close its 130 locations in Russia, which accounts for less than 1% of Starbucks' annual revenue, per a report from CNBC. These are all licensed locations, which means Starbucks does not operate them. Starbucks will, though, pay its nearly 2,000 Russian workers for up to 6 months. The Seattle-based coffee company’s decision comes less than a week after McDonald’s inked a deal to exit Russia with one of its licensees.
- Ghost kitchens seem here to stay but they may not be for everyone. No doubt ghost kitchens represent one of the most intriguing and exciting developments in the industry over the past ten years. Chain and multiconcept operators continue to apply lessons learned while shifting their strategies for the next iteration of their ghost kitchen offerings. But other operators, including independent operators, ghost kitchens might not be part of their future growth plans. Some have cited high delivery costs, finding and training labor and marketing a location that is virtually invisible to customers with too many obstacles to overcome, per a published report.
- A promotional effort may further strain the relationship between restaurants and third-party delivery companies. GrubHub offered to take $15 off any order placed by New York City customers on its app between 11:00 a.m. and 2:00 p.m. on May 17. Who doesn’t love what amounts to a free lunch? As a result, GrubHub was receiving 6,000 orders a minute causing its system to crash and restaurants totally overwhelmed. At some restaurants, the problems carried into the dinner period. GrubHub insists it notified all of its New York City restaurants of the promotion in advance but many of the restaurants don’t recall receiving any prior notification.
- Growth Chains: First Watch expects to open at least 38 units in 2022. This comes after the breakfast/lunch/brunch chain opened 42 locations in 2020 and 31 in 2021. The chain currently has about 440 restaurants systemwide. Roy Rogers opened the first of 10 restaurants planned for the greater Cincinnati area.
- Comparable Store Sales Reports: Applebee’s up 14.1% and IHOP up 18.1%.
For the latest comparable-store sales reports please click here for the Green Sheet.