While their bottom lines may be similar, the 2013 foodservice industry forecasts prepared by Technomic and the National Restaurant Association offer some interesting contrasts.
The NRA's Restaurant Performance Index crept up in November with both sub-indices gaining ground but the overall index stayed below 100 at 99.9. For all intents and purposes it is probably fair to say the Index is flat, meaning the industry is neither growing nor declining.
The Current Situation component rose 0.6 percent to 99.8 thanks to improvements in same store sales and customer traffic. The Expectations component, which asks operators to look ahead six months, was up 0.4 percent to a level of 100.
As might be expected, operators' uncertainty about the economy led to their capital expenditures falling to its lowest level in 32 months. And future plans for capital expenditure dropped to 45 percent from 50 percent in October.
As for what's ahead in 2013, there are two widely disseminated and respected forecasts for foodservice – The National Restaurant Association's and Technomic's. Space doesn't permit a full recap and comparison but the major conclusions reached by the two organizations are really not all that far apart. It is true that the breakouts by segment and sub-segments differ, but the bottom lines are really quite close.
For example, Tecnomic projects total sales this year of $647 billion vs. the NRA's estimate of $660 billion. (It's important to note, though, that Technomic excludes beverage alcohol from its calculations while the NRA includes it.) Technomic predicts nominal growth of 4.3 percent with real growth of 1.8 percent. The NRA is looking for nominal growth of 3.8 percent and real growth of 0.8 percent. From a statistical standpoint the two forecasts are significantly diverse but for most operators and suppliers this will not make much difference in terms of a strategy for 2013.
The message is simple: foodservice remains a mature market, something that's been true for decades. Thus, total market growth – waiting for the rising tide to lift all the boats – is simply not going to drive sales and profit increases. Both operators and suppliers will have to rely on new, innovative products and services and/or have programs to take share away from their competitors. Suppliers can also align themselves with those operators that are growing, which admittedly is not an easy task.
As for the economy as a whole, the outlook remains murky despite movement on the fiscal cliff in recent days. Inflation seems to be under control overall but some commodity prices continue to vex operators and manufacturers. The housing market is like a battered fighter that at last has gotten up off the canvas but remains staggered from the beating it just took. That's because millions of homeowners are behind on mortgage payments, millions owe more on their homes than the houses are worth, and a large backlog of foreclosed homes still need to be sold.
The manufacturing segment seems to be struggling, too. Auto sales have been surprisingly strong but it appears that the old "big three" are dealing with overproduction issues for some models. Finally, the job market has not fully recovered, despite the recession having ended a few years ago. The simple fact is that this is the weakest recovery since the Great Depression and while most experts don't see much chance of sliding back into another recession, some shock could do extensive damage to the economy.
Economic News This Week:
- Christmas gift sales reports are fragmentary and contradictory but it appears that if there was an increase it was marginal with estimates of sales increasing 1.0 percent or less.
- Initial jobless claims climbed 17,000 to 361,000 for the week ending December 14 and fell 12,000 to 350,000 for the week ending December 21. But, many government offices were closed on December 24 and 25, forcing the Bureau of Labor Statistics to estimate the number of claims for 19 states.
- The Federal Reserve's third estimate of Gross Domestic Product for the third quarter of this year increased to 3.1 percent. The increase was driven in part by an upward revision in exports and major increases in government spending.
- News about the housing market continued in a positive vein. The National Association of Home Builders' November Confidence Index rose to 47, its highest level since April 2006. The Index has doubled in the past 112 months but still remains below the 50 mark, which means positive attitudes. The National Association of Realtors said existing home sales in November increase 5.9 percent over October which is a 3-year high. The Realtors also reported that pending home sales increase 1.7 percent in November. This was the third straight month of pending sales increases and the highest since April 2010. The Commerce Department reported that housing starts fell 3 percent in November but the number of building permits issued increased 3.6 percent over October. The number of new building permits is the highest since July 2008. The S&P Case Schiller Report stated home prices crept up 0.7 percent on seasonally adjusted basis in October. The report also said home prices have increased 4.3 percent in the past 12 months. The Commerce Department reported that new home sales increased to an annual rate of 377,000, which is the highest since April 2010.
- Personal income in November rose 0.8 percent after being unchanged in October, according to the U.S. Commerce Department.
- Personal spending also increased in November with the U.S. Commerce Department reporting it 0.6 percent.
- The Philadelphia Federal Reserve reported strong upward movement in its business outlook survey. The index rose to 8.1 in December after having dropped to minus 10.7 in November.
- The Chicago Federal Reserve's Production Manufacturing Index inched up in December to 51.6 from 50.4 in November. New orders were up but production fell as did manufacturing employment.
- Consumer confidence, as determined by the Conference Board, tumbled in December to 66.5, which is the lowest since November 2011. This mirrors similar results of the Reuters/U. of Michigan consumer study. Concern over the "fiscal cliff" received primary blame for consumers' negative outlook.
Foodservice News This Week:
- Foodservice spending increased in the third quarter of 2012 in Australia, Canada, China, France, United Kingdom and the U.S.; it was flat in Japan and declined in Italy and Spain, according to The NPD Group's CREST research.
- Restaurant franchising is projected to grow at a faster rate in 2013 than last year. The International Franchise Association says that limited service restaurants franchising will increase 5.2 percent up from 5.1 percent in 2012. While the increase is slight, the Association predicts that 7 of the 10 franchise categories will have slower growth in 2013 vs. 2012.
- Employee heath insurance remains controversial. While some operators (Darden, Denny's) have garnered negative publicity, The Chattanooga Free Press reported on a Steak 'N Shake franchisee who is on the opposite side of the issue. Debbie Richman, who has 5 Steak 'N Shake restaurants in the Chattanooga area, provides not only health insurance for her 150 full-time employees but also a 401k program, dental, life and disability insurance. She feels so strongly about the benefits she offers that when the recent recession hit, she borrowed money to keep funding the programs. Ms. Richman states that her turnover rate, which used to run 300 percent, is now 75 percent. The article also noted that two of Ms. Richman's restaurants are in the top five in sales in the country.
- Food trucks news includes a Huffington Post story on how this emerging foodservice sector helped Hurricane Sandy victims in New York City. Some brought much needed food to areas on a pay-what-you-can basis while other food trucks teamed with emergency management organizations to provide food for people who didn't have any access to provisions. And, in Columbus, Ohio, 20 food truck operators have banded together to lobby for common interests such as laws on food truck operation.
- The chains in New York City with the most units are Dunkin' Donuts with 484 locations and Subway with 454. The operators added 18 stores and 24 stores in 2012 in New York respectively.
- Buffalo Wild Wings opened a new prototype in a suburb of Cincinnati modeled after a stadium. It features big lights, dozens of TVs – including one 160 inch screen over the bar – and lots of open seating.
- Growth chains. Smashburger has opened a new restaurant in Saudi Arabia with more to open this year. The Melting Pot Restaurant has an agreement with a franchisee to open 5 restaurants in Indonesia. The Dry Fried Wing Company has signed licensing agreements for a minimum of 100 co-branded units in Manhattan in the next 12 months. Bonehead will open its first restaurant in Brooklyn with a goal of having "dozens" of locations in NYC. Fudruckers has a franchise partnership to open 5 restaurants in North Dakota. For additional growth chains news, check out FE&S' Chain Operating Report for Jan. 2, 2013.
- Comparable sales reports: Ark Restaurants (up 0.3 percent), Darden (Bahama Breeze up 1.9 percent, Capital Grille up 0.8 percent, LongHorn down 0.8 percent, Olive Garden down 3.2 percent, Red Lobster down 2.7 percent, and Seasons 52 down 1.0 percent), and Luby's (up 0.2 percent).
For details and reports on other chain comparable store sales, please check out the Green Sheet.
For recent financial reports on foodservice suppliers, please click here.