Burger King Gets Heat for Proposed Move while McDonald’s Feels the Crunch Despite Positive Advance Sales Reports for August

This Week In Foodservice looks at good sales numbers in August from both the government and Knapp Track, provides a look at a Federal Reserve study on why the economy is so soft, and covers a bunch of news on both McDonald’s and Burger King as well as a whole lot more.

Retail sales showed strength in the Census Bureau’s August advance estimates rising 0.6 percent over July. (July sales were revised up to 0.3 percent over June). Excluding motor vehicle sales August results were up 0.3 percent. Compared to August 2013 total retail sales increased 5 percent.

Restaurant and drinking place sales also did well, rising 0.6 percent over July in August. Versus August last year, restaurants and bars saw an increase of 7.1 percent. In the first 8 months of this year, the Census Bureau calculates that restaurants and bars saw an increase in sales of 4.9 percent.

In short, we are seeing decent growth that is exceeding the rate of inflation and outperforming many other retail segments.

There are limitations and caveats to the government data. The figures are projected from a sample of foodservice outlets and the rules of statistical variations apply. Second, the advance numbers are based on a very limited sample and are often revised. (As pointed out above, July’s advance report was revised significantly upwards.) The Census Bureau samples only restaurants and bars. No hotels, resorts, clubs, educational or healthcare operators are included. Finally, some of the numbers are adjusted for seasonal factors, weekends and holidays but not for menu price changes.

Economic News This Week

  • The Federal Reserve’s Survey of Consumer Finances shows some underlying problems effecting the economy. The New York Times analyzed the data and concluded most income groups have not recovered from the recession. College graduates have done fine. Age also makes a difference. Households headed by someone under 35 and those headed by someone over 75 saw steep declines in income. The run up in the stock market hasn’t helped middle and lower income groups because many have dropped out of the stock market. For example, of those in the middle 20 percent of all income earners, 14 percent owned stock in 2007 but only 9.2 percent did in 2013. In 2007, 56 percent of middle-income earners had a 401(k) but that dropped to 51 percent in 2013. Perhaps the only bright spot in the Fed report was debt has fallen and the lower interest rates have made it easier to handle the debt but the article points out that unless incomes rise Americans are going to continue to be frustrated.
  • Initial jobless claims rose 11,000 to 315,000 for the week ending September 6. While this is moderately higher than previous weeks, the less volatile 4-week moving average stood at 304,000, up just 750.
  • The jobless rate may not be a good indicator for the Fed’s Interest Rate Policy, according to a recent article in the New York Times. Given the decline in labor force participation by Americans aged 25 to 54, some economists speculate that there are “structural” problems, such as an unwillingness to look for work or a lack of job skills. If so, the Federal Reserve’s policy of keeping interest rates low to stimulate employment isn’t going to work.
  • Consumer credit increased 9.7 percent in July on a seasonally adjusted annual rate, according to the Federal Reserve. Revolving credit — mostly credit cards — rose 7.4 percent while non-revolving credit (car loans and student loans) increased 10.6 percent.
  • Gallup says consumers are spending more this year than in 2013. In August 44 percent said they were spending more, roughly the same as 45 percent in June who reported spending more. However, those consumers who said they were spending less jumped to 23 percent last month, up from 18 percent in June. One positive factor was an increase in spending on leisure activities to 28 percent, which was up from 24 percent in June but, overall, more people said they were spending less on leisure activities than those who were spending more.
  • A minimum wage of $15 an hour would result in layoffs according to 46 percent of 400 CFOs surveyed by Duke University.
  • The Reuters/University of Michigan Preliminary Consumer Index hit a 14-month high in September, rising to 84.6 from the final August reading of 82.5. The index was driven by a jump in the Expectations Index to 75.6, up from 71.3 in August. The Current Situation Index declined slightly, dropping from 99.8 in August to 98.5.
  • The U.S. Weekly Economic Confidence Index is in the “doldrums.” Gallup said the index was minus 17 the first week in September, identical with the results for the last week in August. In the last 6 weeks the index has stayed in a range of minus 15 to minus 17. The survey continues to show most Americans remain negative on the state of the economy.
  • Dissatisfied Americans are in the vast majority. According to the Gallup Poll only 23 percent of Americans are satisfied with the way things are going in the U.S. This is the 10th consecutive month where satisfaction has been 23 percent and 25 percent. Worse still is 48 percent of those surveyed were “extremely dissatisfied.” Looking at the long run history of the study, 70 percent of Americans were satisfied in 2002 and just 7 percent in 2009.

Foodservice News This Week

  • Knapp-Track same-store sales turned positive in August. Malcolm Knapp’s report on actual sales of 50-plus casual restaurant chains found comparable store sales up 0.6 percent last month. Guest counts were down 2 percent, indicating an increase of 2.6 percent in check averages. Year over year sales results were up in 3 of the 5 weeks covered by August and one week of positive guest counts. While August results are modest, they are encouraging since this is the first month of 2014 showing an increase in comp store sales. (Knapp-Track data is courtesy of Bank of America Merrill Lynch.)
  • Is McDonald’s losing its kiddie customers? According to research by Sandelman & Associates Inc., McDonald’s is no longer number one in “kid appeal.” After 25 years of enjoying the top spot with children, Mickey D’s lost out to Chick-fil-A. Obviously, given a host of other problems the giant chain faces, this is not something the world’s largest restaurant chain needed.
  • Burger King’s loyalty may be suffering because of proposed move to Canada. A survey by YouGov Brand Index found that the number of consumers who would consider going to Burger King is at the lowest point this year, falling from 32 percent on August 26 to 28 percent. Burger King’s CEO, who received a letter from 5 U.S. senators calling on the company to abandon their proposed move, denied the decision was made in order to lower the company’s corporate tax rates.
  • Burger King’s sales have not suffered so far as a result of negative publicity. The chain released sales data for July and August showing comparable store sales were up 3.7 percent in the U.S. and Canada and 2.7 percent worldwide. These results are in sharp contrast to McDonald’s, which has been running negative same-store sales.
  • McDonald’s is expanding ordering tablet tests for made-to order burgers. The advantages may be numerous. Customers order more, spend more, get served quicker and finish quicker — turn those tables! The tablet provides a built-in calorie counter and might just cut back on restaurant staff.
  • C-Store Operator Casey General Stores reported that in their most recent quarter prepared food and fountain same-store sales grew 11.1 percent.
  • Corporate Stirrings: J. Alexander Holdings, owner of J. Alexander Restaurants and Stoney River Steakhouses, announced the submission of a draft registration statement to the SEC for a proposed initial offering of the company’s common stock. Performance Food Grouphas filed with the SEC for an initial public offering of common stock. Dardenhas stated they would review a plan from Starboard investors that calls for splitting off the company’s upscale brands, reinvigorating the Olive Garden chain by offering more authentic cuisine and franchising more restaurants. Blackstone Group LP, owner of Heartland Foods, will sell about 260 of Heartland’s 330 Burger King restaurants to fast food franchisee Houston Foods Inc.
  • Growth Chains: McAlister’s Deli has signed an agreement with an existing franchisee to open 8 locations in Arizona. Casey’s General Store has 35 new and 17 replacement stores under construction plus 8 acquired stores, 35 new sites, and 35 replacement sites under contract. Chicken Salad Chick, with 85 current restaurants, is expanding to Orlando, Jacksonville, Gainesville and Tampa. Krispy Kreme has signed a franchise agreement for 20 stores in Southern Maryland, Northern Virginia and the District of Columbia. Caliburger has signed a franchise agree for at least 10 restaurants in British Columbia. Carl’s Jr. has signed an agreement for up to 100 locations in India with the company stating that there is potential for 1,000 units. Dunkin’ Donuts has signed an agreement with a franchisee to open 65 stores in Brazil.
  • Comparable Store Sales Reports: Burger King (up 3.7 percent); Darden: Bahama Breeze (up 1.1 percent), Capital Grille (up 3.9 percent), Edie V’s (up 2.5 percent), LongHorn (up 2.8 percent), Olive Garden (down 1.3 percent), Seasons 52 (down 0.2 percent) and Yard House (up 2.3 percent); Krispy Kreme (up 2.8 percent); and Tim Horton’s (up 7.0 percent).

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

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