Published on Tuesday, 29 July 2014
Written by Jerry Stiegler
This Week In Foodservice reports on The NPD Group’s overview of the restaurant market, looks at the possibility of civil disobedience protests at restaurants, provides comparable store sales reports for a number of major chains and a whole lot more.
The restaurant market still has not recovered from the recession and is unlikely to do so in the near future according to the NPD Group. The research company says that in the year ending May 2014 visits to restaurants are down by almost 1.3 billion from the level before the great recession.
NPD believes the major cause of this decline is that a large group of consumers are carefully watching their spending. Restaurant dining for many people is a “nice to have and not need to have.” This observation mirrors industry expert Malcolm Knapp’s theory that consumers are spending very selectively.
However, NPD points out some positive factors, such as the healthy performance of the fast-casual segment, breakfast traffic has been up for 3 years, and restaurant customers have responded to deals and discounts.
Most encouraging of all, U.S. consumers made 61 billion visits to restaurants in the 12 months ending in May and that is a lot of meals away from home.
Economic News This Week
- The Consumer Price Index rose 0.3 percent in June with the Bureau of Labor Statistics reporting that a 3.3 percent increase in gasoline prices account for two-thirds of the rise in the overall index. Food prices were up 0.1 percent with food at home prices flat. In the past 12 months the CPI is up 2.1 percent.
- Initial jobless claims fell by an impressive 19,000 to 284,000 for the week ending July 19. This is the lowest number of weekly claims since February 18, 2006. The more stable 4-week moving average fell 7,250 to 302,000, which is the lowest the average has been since May 19, 2007.
- Existing home sales climbed 2.6 percent in June to a seasonally adjusted annual rate of 5.04 million. This is the first time sales have gone over 5 million since October 2013. The National Association of Realtors attributes the rise to more homes being offered for sale. However, June sales were 2.3 percent below the 5.16 level of June 2013.
- Pending home sales fell in June with the National Association of Realtors Pending Home Sales Index declining by 1.1 percent to 102.7. A spokesperson for the Realtors association noted that the Index remained above 100 indicating average home sales activity.
- New home sales declined in June by 8.1 percent from May to a seasonally adjusted annual rate of 406,000. Sales were down 11.5 percent vs. June 2013.
- Durable goods orders rose 0.7 percent in June according to the Census Bureau’s advance report. Excluding the volatile transportation segment, durable goods orders rose 0.8 percent.
- Retail sales projections were revised downwards for 2014, going from a gain of 4.1 percent to a gain of 3.6 percent by the National Retail Federation. While one retail consultant said, “No one is doing well,” expectations are that the second half of 2014 will improve with sales going up 3.9 percent vs. the 2.9 percent growth in the first half. How closely restaurant sales are linked with overall retail sales is an unknown.
- U.S. Economic Confidence Index crept up to minus 15, a 3-point increase over the prior week. Gallup noted that the Index is about where it was in April and May.
- Global consumer confidence increased one index point to 97 in the second quarter this year, according to the Nielson Company. This is the highest the index has been since 2007. U.S. citizens scored 104, the eighth highest among countries polled. India was first with a score of 128 and Portugal last with a 48.
Foodservice News This Week
- Fast food employees gathered in Chicago this past weekend to promote their drive for a $15 an hour wage. The meeting was evidently organized by the Service Employees International Union and was held just a few miles from McDonald’s home office. The New York Times reported that the assembled workers voted to conduct a wave of civil disobedience actions.
- June food away from home prices rose 0.2 percent. The Bureau of Labor Statistics states that since July 2013 food away from home prices have increased 2.4 percent.
- McDonald’s has a plan to rebrand itself, not just as an inexpensive operation but as “an appealing and high quality one, as well.” Don’t look for a new logo. McD will focus on improving customer service, changing the menu, and increasing the effectiveness of their marketing program, especially their online and social media efforts. McDonald’s has announced new restaurant designs previously including both front and back of the house and those changes will continue along with the addition of new stores.
- A bill to promote the U.S. as an international tourism destination has gotten wide support in the U.S. Congress. Called the Travel Promotion Enhancement and Modernization Act, the measure has received the enthusiastic support of the National Restaurant Association. The NRA says about $1 out of every $4 spent in restaurants is the result of travel and tourism.
- Potatoes are suddenly the next big idea. The humble spud is now appearing as a sandwich topping in various forms — mashed, hash browned and French fried. And, as pointed out in this space recently, flattened baked potatoes are being served with a variety of toppings. With beef and pork prices at all-time highs, potatoes are filling in as an inexpensive alternative.
- Target has opened a new smaller concept called TargetExpress. The store is aimed at serving University of Minnesota students and is roughly 15 percent the size of an average full-serve Target store. Target does not use the term convenience store but says it is for “quick shopping trips.” Offerings include grab-and-go sandwiches.
- Holiday Station Stores has partnered with Godfather’s Pizza in a new North Dakota store. The almost 500-unit C-store chain stated the location will have an extensive breakfast and lunch menu as well as the Godfather offerings. There is no indication if similar stores are planned.
- Domino’s Pizza has two big ideas. The chain’s CEO is talking about a “skinny menu” using low-fat cheeses and meats, reduced sodium sauce, and whole-wheat flour in the crust. And, to deliver the pizza, Domino’s is considering a specially designed delivery vehicle. The DXP, as it is called, resembles a smart car and has pizza holding stations accessed through a hatch in the side of the car behind the driver’s door.
- Corporate Stirrings: Darden’s CEO, Clarence Otis, will be stepping down as CEO from the embattled chain. The company also announced the role of CEO and chairman will be split in the future. Darden also said they will make three seats available on their board of directors for outsiders, evidently as a move to placate critics. In other news, Darden is being sued by hedge fund Starboard Value over the sale of Red Lobster. Starboard claims that Darden is withholding data while Darden says the information is confidential. El Pollo Loco’s initial public offering of 7.1 million shares at $15 per share was snapped up by investors, which drove the price up 60 percent at close of the market on Friday. The share price continued to climb Monday, closing over $34.
- Growth Chains: Pie Five Pizza has signed a franchise agreement for 25 restaurants in Alabama, Mississippi and Tennessee. Subway opened their first restaurant in Sri Lanka and is targeting 50 restaurants in 3 to 5 years. Tava Indian Kitchen plans on opening 112 restaurants in the next 2 years. Rita’s Italian Ice has a development agreement for New Mexico as well as for Durango, Pagoso Springs, and Trinidad, Colorado. Encore Restaurants has purchased 8 Five Guys restaurants in Central California and plans on developing 45 more in the state. Jet’s Pizza franchisee in Memphis plans on building as many as 15 stores. Sbarro plans to open 80 restaurants in Brazil in the next 10 years. Buffalo Wings & Rings has opened their first unit in Saudi Arabia and has 11 more planned.
- Comparable Store Sales Reports: Baskin Robbins (up 4.2 percent), BJ’s Restaurants (down 1.7 percent), Cheesecake Factory (up 1.5 percent), Chipotle (up 17.3 percent), Del Frisco (system up 2.2 percent, Del Frisco up 5.2 percent and Sullivan’s up 0.9 percent), Domino’s (system up 5.4 percent, company-owned up 3.5 percent, and franchised up 5.5 percent), Dunkin’ Donuts (up 1.8 percent), Gran Lux (down 2.7 percent), and Starbucks (up 7.0 percent).
For details and same-store sales of other chains, please click here for the Green Sheet.
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