The government numbers for prices in July are interesting and lead to speculation on where inflation is headed and if a recession is in the future. QDOBA gets new owners. While Wendy’s will cut back on its ghost kitchen plans, other operators are not spooked by the segment.
Consumer prices leveled off in July compared to June, per the U.S. Bureau of Labor Statistics.
A deeper dive into the data, though, shows while some indexes improved, others did not. For example, a 7.7% decline in the gasoline index offset plenty of price increases in other areas. In fact, the all-items index increased by 8.5% over the last 12 months.
Thus, observers who have interpreted the drop in the Consumer Price Index as an indicator that inflation is improving thus keeping a recession at bay may want to revisit that line of thought. The CPI holding flat for one month does not make for a great economy.
Among those items that are showing a significant rise in their price index was food which jumped 1.1% in July from June and is up 10.9% in the 12 months ending July. Food at home prices increased 1.3% from June and is up a fairly heavy 13.1% in the last 12 months.
The food away from home price index showed a lot slower growth rate but still rose 0.7% on a month-over-month basis and is up 7.6% over the past 12 months. Even if both food and energy are removed from the CPI still rose 0.3% in June and is up 5.9% in the last 12 months. So, it appears inflation is not yet under control.
Despite these macroeconomic headwinds, some restaurant companies report their costs may be starting to stabilize. One such chain is Carroll’s Restaurant Group, a publicly traded franchisee of Burger King and various other restaurant chains. “Although inflationary challenges continue to meaningfully affect our profitability, commodity costs and team member average hourly wages are stabilizing at these elevated levels while beef costs are beginning to trend downwards,” said Paulo A. Pena, the company’s president and chief executive officer while announcing Carroll’s second quarter performance. “In addition to the ongoing menu and promotional optimization, we have an additional price increase slated for September at our Burger King restaurants that we do not believe will negatively impact traffic. We also appreciate the importance of adapting and evolving operations to maximize profitably in this higher cost environment.”
Economic News This Week
- The Producer Price Index declined 0.5% in July, per the U.S. Bureau of Labor Statistics. In the 12-months ending in July final demand prices moved up 9.8%. Energy prices declined 9.0% but food prices rose 9.0%.
- Initial jobless claims totaled 262,000, an increase of 14,000 for the week-ending August 6, per the U.S. Department of Labor. The fairly large increase of 14,000 did not raise the concern it might normally have because the previous week’s total was revised down by 12,000 claims. The 4-week moving average totaled 252,000, an increase of 4,500 claims.
- The University of Michigan Index of Consumer Sentiment’s preliminary August survey improved to 55.1 from 51.5 in July. This is the highest reading in 3 months and beat forecasts of 52.5. The Expectations Index increased rose from 47.3 in July to 54.9 in August, but the Current Economic Index declined from 58.1 in July to 55.5.
Foodservice News This Week
- QDOBA was acquired by Butterfly, a Los Angeles-based private equity firm that specializes in the food industry. The financial terms of the deal were not disclosed. The deal was structured as a merger with Modern Restaurant Concepts, a fast-casual operator of two chains: Modern Market Eatery and Lemonade. When the deal closes, which is expected to occur during the third quarter of 2022, QDOBA will become part of MRC and the multiconcept operator will have approximately 800 units systemwide. MRC will continue to grow all three chains through company-operated, franchised, and licensed openings. MRC leadership sees growth potential for more than 3,000 total units across brands, per a release. Along those lines, MRC announced a franchise deal for Modern Market, the first for the chain. It will lead to more than 40 new Modern Market locations across 7 states.
- Wendy’s will revise its ghost kitchen plans. The quick-service restaurant chain feels its deal with Reef Kitchens is not performing as well as hoped. Wendy’s might close as many as 70 ghost kitchens leaving the fast food giant with just 65 locations in the US, Canada and the U.K., per published reports. Wendy’s had originally planned 700 ghost kitchen units globally but the current plan now calls for 100 to 150 locations. Regardless of Wendy’s decision, many restaurant operators feel certain ghost kitchens are here to stay.
- Apparently, off-premises sales continue to drive sales for some restaurant chains. Take, for example, Dine Global. The multiconcept operator attributes its second-quarter growth in large part to an increase in off-premises sales. During this reporting period, off-premises sales accounted for 25.6% of Applebee’s sales mix and up 21.3% at IHOP.
- Non-alcohol cocktails continue to flourish. Also known as mocktails, some see the popularity of fancy drinks made sans alcohol as health inspired while others find it more relaxing since they don’t have to worry about the drive home. Some operators continue to see this as an opportunity to introduce more creative beverages.
- Growth Chains: Ford’s Garage is opening its first location in Cincinnati with plans on adding 3 more. White Castle opened a location in Tempe, its second unit in Arizona. White Castle also opened a location on New York’s Coney Island. Earlier this year, White Castle reopened a location in New York City’s Harlem neighborhood. Epic Wings, formerly known as Wings & Things, will expand to the East with its first Florida unit in Clearwater. Black Bear Diner opened a location in McAllen, Texas. It’s the chain’s second opening in the Lone Star State this year and its plans to open 14 units overall in 2022. Ruth’s Chris Steakhouse opened two new units, one in Worcester, Mass., and another in Long Beach, Calif. The 57-year-old restaurant chain has more than 150 units systemwide.
- Check out the newly updated Green Sheet that features the most recent comparable store sales results for 50 restaurant chains. Please note some chains have yet to report their quarterly financials and we send along their comparable store sales as soon as they do. There are two chains that as far as we can determine do not report their comps. One is Ark Restaurants which stopped reporting their comparable sales during the pandemic on the basis that comparisons were meaningless. Another chain that does not regularly report its comp sales is Steak N Shake. It is important to point out comparable sales are not required under GAAP rules.
For Comparable Store Sales Reports of other chains please click here for the Green Sheet.