This week we take a look at December retail sales and how restaurants fared last month and for all of 2013. We will also look at the affect improved service has on fast food sales, and much more.

Retail sales rose 0.2 percent in December according to the U.S. Census Bureau. Take auto sales out of the mix and retailers did even better, posting a 0.7 percent increase compared to November's levels. (The slowdown in car sales is attributed to bad weather and some calendar shifts rather than any true weakness in demand.) Compared to December 2012, sales were up 4.2 percent. Though October and November sales were revised slightly downward, many observers took last month's sales results as a sign that the economy will be picking up steam in 2014. However, 2013's growth rate was less than 2012's, which posted an increase of 5.4 percent.

As for restaurants and bars, the U.S. Census Bureau reports sales increased 0.4 percent over November and were up 4.6 percent over December 2012. For the year, restaurants and bars sales increased 4.1 percent. While far from spectacular, this exceeds the 2.1 percent rate of inflation for food prepared away from home, indicating 2 percent real growth in 2013. Looking back at the year, sales increased every month over the corresponding month in 2012. Thus, the foodservice industry continues to chalk up slow but steady growth.

The usual limitations apply to the government sales numbers. The data is based on a limited sample and categorized as advance results. Only restaurants and bars are included in the survey so a significant part of the foodservice business is not studied. The data is adjusted for seasonal differences, holidays and weekends, but not for inflation.

Economic News This Week

  • Initial jobless claims were 326,000, a decline of 2,000, for the week ending January 11. The less volatile 4-week moving average was 335,000, a decline of 13,500. Although still high by historical standards, the number of claims seems to be on a downward trend. The rest of the month should provide a better look at the number of layoffs as seasonal variations disappear.
  • Job openings stayed fairly steady at 4 million in November according to the U.S. Bureau of Labor Statistics. Job openings in October were projected to be 3.9 million. The number of openings were 3.78 million in November of 2012.
  • The true unemployment rate is 9 percent, not the announced 6.7 percent, according to a blogger for the New York Times. Like a number of labor experts, he factors in the discouraged workers who have given up looking for work and are not counted as unemployed. Some economists put the rate still higher by including part-time workers who want full time work.
  • The Producer Price Index rose 0.4 percent in December according to the Bureau of Labor Statistics. Without the highly variable energy and food prices, core producer prices were up 0.3 percent. Energy prices increased 1.6 percent but food prices declined by 0.6 percent, lead by a 13 percent decline in vegetable prices. Producer prices for the year of 2013 grew just 1.2 percent indicating inflation is well under control.
  • Consumer prices increased 0.3 percent in December with core prices — without energy and food prices — growing just 0.1 percent. Energy prices were up 2.1 percent while food prices edged up just 0.1 percent. For all of 2013 the CPI was up 1.5 percent and core prices climbed 1.7 percent. Food Away From Home prices increased 0.1 percent in December and, as pointed out above, increased 2.1 percent for all of 2013.
  • The housing market softened in December, probably effected by bad weather over much of the nation, according to the U.S. Department of Commerce. Building permits totaled 986,000, a decline of 3 percent compared to November. Permits were up 4.6 percent compared to December 2012. Housing starts also declined by 9.8 percent over November but were up 1.6 percent over December 2012.
  • Christmas sales were about as expected, rising 3.8 percent, based on the National Retail Federation's final report. The Federation had predicted a 3.9 percent increase. In short, seasonal sales were good but not great. The question is: Did retail chains drive volume by heavy discounting and hurt profitability?
  • Industrial production rose 0.3 percent in December after a 1.1 percent jump in November. The large November advance was due to increased output at utilities as a result of colder than normal weather. The Federal Reserve attributes December's growth to increases in manufacturing and mining. Capacity utilization was virtually the same in December — 79.2 vs. November's 79.1.
  • Regional manufacturing surveys came in reasonably strong in January. The NY Federal Reserve's Manufacturing Index leaped to 12.5 from 2.2 in November. This is the best reading since May 2012. New orders, shipments, and employment all rose. The Philadelphia Federal Reserve reported manufacturing activity in its region totaled 9.4, up from 7.0 in November. This was the eighth straight month of growth. Shipments rose while new orders declined but stayed well in positive territory.
  • Americans think government is the problem. A January poll by the Gallup Organization found 21 percent of those responding said that government/congress/politicians, etc. were the most important problem facing the country today followed by the economy in general (18 percent), unemployment/jobs (16 percent) and poor healthcare, hospitals, healthcare costs at 16 percent.
  • Consumer confidence slid in the Reuters/University of Michigan Index, falling to 80.4 in the preliminary January reading from the final December score of 83.5. Gallup's U.S. Economic Confidence Index held the first two weeks of the year at minus 13 and minus 14.

Foodservice News This Week

  • Improved service has a major impact on a fast food restaurant's financial performance. Jack in the Box reports its drive-thru service time averages about 4 minutes and the chain hopes to reduce that to 3 minutes. Interestingly, Jack in the Box quantifies the benefits of faster service by saying that serving 6 more customers per day translates into a 1.0 percent increase in same-store sales. McDonald's estimates that a 6 second improvement in service time also equals a 1.0 percent same store gain. Source of this information is Bank of American Merrill Lynch.
  • Are fast food franchisees desperate? thinks that franchisees really want to kill the dollar menus due to a lack of profits, decline in sales of more profitable products, and operational problems. The story seems largely based on the Janey Montgomery Scott McDonald's study that was covered in this space last week. Whether McD's people are actually "desperate" is debatable, it should be noted that Wendy's insists that their "Right Size Right Price Menu" is profitable.
  • The Best-Perceived Brands of 2013, from YouGov's Brand Index, had Subway ranked no. 3 overall. Amazon was no. 1.
  • Corporate moves this week includes CEC Entertainment, parent of Chuck E. Cheese, announcing that the chain will merge with an affiliate of Apollo Global Management. Also, Sbarro, which emerged from bankruptcy about 14 months ago has hired attorneys and bankers to act as restructuring advisers. This frequently means that the company will put itself up for sale. One industry authority noted that Sbarro's marketing strategy of operating in mall food courts means they must rely on a business in the shopping area and it is hard to generate traffic on their own.
  • The Denver restaurant scene is booming. Don't tell people in the Denver area that last year was a bad one for restaurants. The area had more than 200 new restaurants open and dozens more are debuting this year. Attracting this investment is a downtown residential population that is expected to grow by 18 percent in the next 5 years. One local observer notes that the number of restaurants are exceeding the demand and expects the older establishments may be the ones to suffer because Denver residents love "to try the hot and hip and cool thing."
  • Cattle prices hit a record high last week and experts believe that prices will continue to rise given tight supplies.
  • Growth chains: J. Alexander's, which was purchased by Fidelity National Financial in 2012, has hired an executive to manage real estate and construction indicating the chain will begin to grow again. At least one J. Alexander's and one Stoney River will be opened this year. Taziki's Mediterranean plans to open at least 20 new restaurants this year. Kwik Trip c-stores will open 34 new locations this year. PizzaRev signed a franchise agreement with a group that will open 25 new restaurants in 5 states. Corner Bakery Café plans to open eight new restaurants in Sacramento, Calif., in the next five years. Dickey's Barbeque announced a development deal for 100 stores in Southern California, the largest agreement in the chain's history.
  • Comparable store sales reports: AFC Enterprises (up 0.3 percent), Ignite Restaurant Group (Joe's Crab Shack up 1.9 percent, Romano's Macaroni Grill down 9.0 percent, and Brick House Tavern up 6.6 percent), and Noodles & Company (system up 3.9 percent, company owned up 4.3 percent, and franchised up 1.5 percent).

For complete details and same store sales of other chains, please click here for the Green Sheet.