Darden’s Shareholder Takeover, Tablets Don’t Mean Fewer Jobs, and Much More

Knapp-Track says casual chain restaurant comp sales were up again in September. Despite improving sales, Darden stockholders vote in a new board. A report notes that the new tablet ordering systems may not replace employees.

Knapp-Track reports comparable store sales were up 1.7 percent in September among the causal dining chains the study tracks. Traffic was down 1 percent, which would indicate check averages rose 1.7 percent.

This marks the second straight month same-store sales increased for the 60 or so casual restaurant chains that participate in Mr. Knapp’s study. Comp sales were down the 8 months previous to August. While the news is encouraging, Mr. Knapp pointed out that October comparisons may be more challenging for the casual restaurant market, given October 2013 comps were up. Also, Halloween was on Thursday last year but is on a Friday this year, which may drag down dining out on what is usually a busy night. Mr. Knapp’s information is courtesy of Bank of America Merrill Lynch.

Economic News This Week

  • There were 4.8 million job openings in August, up from 4.6 million in July. The Bureau of Labor Statistics reported that available jobs are up 23 percent over August 2013 and are at the highest level since January 2001.
  • Initial jobless claims remained steady at 287,000 for the week ending October 4. The Department of Labor said claims fell by 1,000 from a revised 288,000 the week before. The 4-week moving average was 287,750, a decline of 7,250. Weekly claims less than 300,000 is thought to be a good sign of an improving job picture.
  • Economists see moderate growth in the U.S. A Wall Street Journal survey of 46 economists found a consensus estimate of 3.2 percent growth in the third quarter and 3 percent growth in the fourth quarter of this year. Further, those surveyed project unemployment will drop to 5.8 percent by the end of this year and finish 2015 at 5.4 percent. Among positive signs is the declining price of oil while faltering economies of Europe and China may pose headwinds for the U.S.
  • Consumer borrowing increased 5 percent in August, on a seasonally adjusted annual rate. This was the smallest increase in nine months. Non-revolving borrowing (car loans, student loans, etc.) grew by 7 percent while revolving loans (mostly credit cards) fell by 0.3 percent. Reducing credit card usage may indicate that consumers are nervous about the economy but some observers feel that August borrowing may be a blip.
  • August home prices climbed 0.3 percent over July according to CoreLogic. August home prices were up 6.4 percent over August 2013. It appears that the home price increases are slowing down. The positive effect of this is to keep homes affordable for more buyers.
  • Christmas sales will increase 4.1 percent compared to last year’s levels, according to the National Retail Federation. Sales in November and December increased 3.1 percent last year and have averaged 2.9 percent the last 10 years.
  • Consumers plan to increase their Christmas spending, according to an Accenture study. One quarter of those surveyed said they plan to spend more this holiday season. In last year’s study, only 20 percent said they were planning to spend more. One reason for more spending is this year 22 percent said they had more job security, up from 15 percent last year.
  • U.S. consumers’ self-reported daily spending in September fell to $87 after hitting $94 in July and August, according to data from The Gallup Organization, who pointed out daily spending was $84 in September 2013.

Foodservice News This Week

  • Darden shareholders replaced the company’s entire board of directors by voting in the 12 directors nominated by hedge fund Starboard Value LP. While Darden has been under fire from Starboard and other investors, it is unusual for a major corporation to have outside investors take over the entire board. It is a stunning rebuke of Darden management, particularly in light of the fact the company remains reasonably profitable. Darden reported Olive Garden comparable store sales increased 0.8 percent in August and 0.6 percent in September.
  • Technology in restaurants has its limitations. Tablet ordering systems continue to make their way into restaurants and a Yahoo! Finance article explores the impact this form of technology is having at Chili’s and Panera. The conclusion? While the new systems may appeal to techies and Millennials, the writer doubts few humans will lose their jobs to them.
  • C-Stores are high point in an otherwise flat foodservice market, according to The NPD Group. Convenience stores experienced a 3 percent increase in traffic in the year ending May 2014 with traffic up for all day parts.
  • Consumers’ desire for higher quality menu items may translate into a golden opportunity for the burgeoning fast-casual pizza segment. A CNBC news item speculates there could be as many as 2,000 new fast-casual pizza units springing up in the next 5 years.
  • A new take on veggie burgers appears ready to blossom. The Wall Street Journal reports a collection of companies, including a few well-funded start-ups, are close to developing a plant-based product that has the taste, appearance and texture of a burger. Scientists are also working on plant products to replace cheese and eggs to help create more sustainable food options.
  • Lower-calorie menu items remain on the rise. A Johns Hopkins Bloomberg School of Health study of 66 restaurant chains found a 12 percent calorie drop in new menu items. While declining calorie counts could conceivably have a positive impact on obesity rates, that’s contingent upon patrons’ following suit and buying these items.
  • The new four-letter word in restaurants: deal. Promotions are nothing new in the industry but Burger King’s price of a $1.49 for 10 chicken nuggets has caught the attention of an observer with McDonald’s selling 20 McNuggets for $5.00. Marketing experts have long been at odds over the value of price deals when it comes to building brand loyalty.
  • New York City restaurants continue to multiply. Despite skyrocketing rents, numbing red tape and what some consider draconian health inspections, the number of permits for restaurants, bars and cafés has increased 27 percent in New York City during the past decade and now numbers almost 24,000.
  • Dairy Queen announced that 395 of the their stores’ computers were compromised in August and there was a possibility that customers’ credit card data was stolen.
  • Domino’s Pizza introduced a voice ordering app that even offers humorous comments. The voice character is named Dom and the pizza chain says the program is an industry first.
  • Corporate Stirrings: Diversified Restaurant Holdings, a franchisee of Buffalo Wild Wings and owner of other restaurant brands, has announced a sale and leaseback arrangement with Spirit Realty Capital for $24.6 million. Dave & Buster’s initial public stock offering raised $94 million, which the company will use to pay down debt. Lemonade Restaurant Group, which has 14 fast-casual restaurants in Southern California, announced a partnership with KKR with the investment firm taking a minority ownership in the chain.
  • Tony Roma’s new concept, TR Fire Grill and Lounge, aims to be hipper and trendier. While keeping some of the original menu favorites, the chain will drop some items and add others. Physically, the concept has an expanded patio and offers higher ceilings and a more open appearance. The company hopes that the restaurant will encourage franchisees to build restaurants.
  • Growth Chains: Marco’s Pizza plans to have 1,000 restaurants by 2016. Villa Enterprises has opened 34 Villa Italian Kitchens in sites purchased from General Growth Properties Inc. Moe’s Southwestern Grill opened their first restaurant in Las Vegas with a second unit set to open in November. Crumbs Bake Shop will reopen 25 stores in the next 30 days. Smoothie King will open four locations in Southern Florida by the end of this year. Spoleto, a Brazilian owned Italian chain with restaurants in Brazil, Mexico and Costa Rico, opened their first U.S. location with a second set to open next spring.
  • Comparable Store Sales Reports: Darden (Bahama Breeze down 0.3 percent, Capital Grille up 6.4 percent, Edie V’s up 4.0 percent, LongHorn up 3.2 percent, Olive Garden up 0.6 percent, Seasons 52, and YardHouse up 3.8 percent), Ruby Tuesday (company-owned 1.6 percent and franchised up 6 percent), and YUM! (KFC up 2 percent, Pizza Hut down 2 percent, and Taco Bell up 3 percent.)

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