November retail sales were stronger than anticipated while restaurant sales performed well, too. A study of minimum wage increase produces negative results. Sysco’s proposed merger with US Foods carries a steep penalty. This and lot more in This Week In Foodservice.

The Census Bureau reported that advance November retail sales increased 0.7 percent over October. Without motor vehicles and parts, total retail sales were up 0.5 percent. Compared to November 2013, retail sales increased 5.1 percent and are up 4 percent in the first 11 months of this year. Without motor vehicles and parts, total sales rose 4.3 percent over November 2013 and are up 3 percent in the first 11 months of 2014.

The consensus sales increase forecast for November was 0.4 percent.

Other good news from the Census folks was that retail sales for October were revised up to 0.5 percent from the initially announced 0.3 percent.

Still better, November restaurant and bar advance sales rose 0.7 percent over October, which marked a 6.7 percent increase over November last year. In the first 11 months of 2014 restaurants and bars saw sales grow by 5.6 percent.

Now there are some limitations to the sales statistics above. The Census Bureau surveys restaurants and drinking places. No hotels, motels, resorts, clubs, retailers, etc. are included nor are any institutional operators such as employee feeders, healthcare, education or military.

Second, the Bureau classifies the numbers as “advance” since they are based on a small initial sampling and thus are subject to revision. Finally, the sales are adjusted for seasonal variations, holidays, weekends, etc. but not for menu price inflation. (The 11 month sales numbers are unadjusted.)

Economic News This Week

  • A new study says the last minimum wage increase killed jobs. Economists from the University Of California studied the impact of the last federally mandated minimum wage increase of $5.15 to $7.25 an hour and concluded that the economy lost about 1.4 million jobs and reduced the employment-to-population ratio by 0.7 percentage points as a result. The study also reported that income and future income prospects of low-skilled workers actually fell in the aggregate, in part because of workers taking unpaid internships.
  • The November Producer Price Index fell by 0.2 percent. The index for goods fell 0.7 percent while the index service prices rose 0.1 percent. Prices for food products fell 0.2 percent while energy prices dropped 3.1 percent. This left the so-called core index — prices without the volatile food and energy prices — at minus 0.1 percent.  Thus, inflation is not a factor in the economy.
  • Initial jobless claims fell by 3,000 to 294,000 for the week ending December 6. The 4-week moving average was 299,240. Claims are staying relatively steady. However, in a few weeks holiday layoffs and other seasonal variations may begin to cause some wide swings in the numbers.
  • The NY Federal Reserve’s Empire State Manufacturing Survey fell 14 points to minus 3.6, the first time the survey has been in negative territory in 2 years. The new orders index also went negative to minus 2 while the employment index was steady in positive territory at 8.3.
  • Home builders’ confidence fell one point in December to 57 after rising 4 points in November. Any reading over 50 means more builders are confident than negative. A recent Wall Street Journal article stated that builders’ confidence does not correlate well with actual new home sales.
  • The Reuters/University of Michigan Index of Consumer Sentiment in December hit an 8-year high, rising to 93.8. The index of current economic conditions rose to 105.7 from the final reading in November of 102.7. There was a steep jump in the consumer expectations index as well, as it rose to 86.1 from November’s 79.9.
  • The Gallup U.S. Economic Confidence Index was minus 9 for the week ending December 7. The Index remains at roughly the same level as in the past 2 weeks and considerably higher than it has been for most of this year.

Foodservice News This Week

  • Sysco may pay a steep price for U.S. Foods merger. The NY Post reported the distribution giant will sell $5 billion in assets to Performance Food Group in order to obtain government approval for the merger. This is far more than the $2 billion sale Sysco originally suggested and roughly equal to one quarter of US Food’s revenue.
  • Could Starbucks be worth more than McDonalds? Mark Kalinowski, restaurant analyst for Janney Capital Markets thinks it is possible by 2025. He sees Starbucks as able to position itself as “a high-end purveyor of all sorts of non-coffee times.” Currently McDonald’s has a market capitalization of $93 billion while Starbucks market capitalization is $61 billion.
  • Ace Metrix determined the most effective TV advertisers based on numerous factors and found the most effective restaurant advertisers were IHOP, Longhorn, Olive Garden, Outback and TGI Fridays. The most effective fast food advertisers were Baskin-Robins, Dairy Queen, Panera Bread, Pizza Hut and Taco Bell.
  • “All of the above” seems to be the consumers choice for dinner. A study by ACOSTA Sales & Marketing found in the previous 30 days 86 percent of consumers ate at a restaurant, 71 percent ordered food for pickup or carry out, 66 percent brought home prepared foods from a grocery store, and 48 percent ordered restaurant food for delivery. As for reasons to eat out, 44 percent said it was determined by their mood, 42 percent said it was when they were too tired to cook, 41 percent because the family asked to, and 41 percent said it was to celebrate special events like birthdays.
  • Technology pays off for Papa John’s Pizza with the chain announcing that 50 percent of their US takeout and delivery sales now come from digital and mobile channels.
  • Little Caesars Pizza will build an 8-story, 205,000-square-foot global resource center in Detroit featuring what is described as “innovative” kitchens.
  • McDonald’s will trim menu items with the regular menu losing 8 items and the extra value menu dropping with the goal of speeding up service. Specific products were not released. Chopping the menu is always tricky and it is a sure bet that some franchisees will disagree with the items selected. It is possible that McDonald’s corporate will allow some flexibility. McDonald’s also announced the expansion of the build your own burger program and some observers noted the two changes may be at cross purposes with one another.
  • Foodservice was well represented in top new products this year. Schneider Associates and Sentient Decision Science surveyed 1,000 adults online to determine the most memorable new product launch and revealed 3 menu items - Taco Bell’s A.M. Crunchwrap (#7), Subway’s Flatizza (#6), and Taco Bell’s Waffle Taco (#5). Number 1 was iPhone 6 Plus.
  • The Top 10 cities in the U.S. for the percentage of food dollars spent on food away from home, according to the NRA are: Washington, D.C., San Diego, San Francisco, Houston, Baltimore, New York, Philadelphia, Los Angeles, Cleveland and Dallas/Ft. Worth.
  • The most expensive restaurant in the U.S. is….Masa in New York with a per person check average of $585 according to the Zaggat Survey.
  • C-Store operators have expansive plans for increasing their food and beverage offerings next year according to the CSP Outlook Survey. The 3 most popular areas are expanding the coffee bar (37.6 percent), expanding the fountain (27 percent) and launching a proprietary foodservice program (27 percent) all of which would indicate the purchase of new equipment.
  • Corporate stirrings: Tim Horton’s shareholders took just 10 minutes to approve the acquisition of the chain by Burger King with 99.2 voting for approval. The name of the new company will be Restaurant Brands International. The Tim Horton’s deal was finalized on Friday, December 12. YUM! Brands announced the company expects at least a 10 percent increase in earnings per share in their upcoming fiscal year. White Castle will close the chain’s 5 restaurants in the Cleveland-Akron area. Peet’s Coffee & Tea will close 4 Pittsburgh area shops.
  • Growth chains: Fuddruckers has opened a restaurant in Chile with 9 more to follow. Pie Five Pizza has signed a franchise agreement for up to 10 units in Kentucky.  Zaxby’s has signed a multi-unit franchise agreement for 28 new restaurants in the Oklahoma City area. The East Hampton Sandwich Company will open 3 locations in Dallas in 2015 and 4 more in other areas of Texas in 2016.
  • Comparable store sales reports: Bob Evans (Flat), Casey’s General Store (up 11.1 percent), and Krispy Kreme (up 3.7 percent).

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