Technomic Rethinks Refranchising, McDonald's Get Flexible and More

Operators focus on future equipment investments. Despite what appears to be a cloudy overall job picture, foodservice keeps hiring. Technomic says refranchising may not be a good move. These stories plus a whole lot more This Week In Foodservice. 

Foodservice operators remain optimistic about the coming months though perhaps not quite as confident as in previous months. So says the Restaurant Performance Index for May. Based on data collected by the National Restaurant Association, this study shows that 47 percent of the operators expect to have higher sales in 6 months. This marks a 5 percent drop from 52 percent who expected increased sales in the April survey. Only 9 percent of operators expect a sales decline.

The fact that 60 percent of operators report making a capital expenditure for expansion, remodeling and/or major equipment purchase in the last 3 months remains a bright spot for the restaurant industry. This also represents a 4 percent increase from April. Further, 54 percent of operators plan a capital expenditure in the next 6 months.

Considering all the pressures they face – minimum wage increases, revised rules for overtime pay, insurance costs, etc. – it is surprising the RPI continues to show that operators continue to have such a positive outlook.

Economic News This Week

  • The Pending Home Sales Index hit a nine-year high in May with the National Association of Realtors reporting a reading of 112.6, which translates into a 0.9 percent increase.
  • The Institute for Supply Management’s Production Manufacturing Index inched up 0.7 percent in June to a total of 53.8. The New Orders Index recorded a modest increase of 0.2 percent to 56. The Production Index fell 0.5 percent to 54 and the Employment Index rose 3.8 percent to 55.5 percent. Any number in excess of 50 indicates growth in the manufacturing segment.
  • The Institute for Supply Management’s Non-Manufacturing Index grew 0.3 percent to 56 in June. The New Orders Index rose 0.4 percent to 58.3 but the employment index fell 2.6 percentage points to 52.7. Out of 18 industries studied by the ISM, 15 reported growth in June including Accomodations and Foodservice.
  • The Chicago Production Manufacturing Index remained in contraction mode in June. While the Index climbed by 3.2 percentage points, its reading of 49.4 meant it was below the breakeven level of 50.
  • U.S. car and light truck sales remained strong in June with a seasonally adjusted annual selling rate of 17.16 million. This is the first time sales have been more than 17 million for 2 months in a row since 2005.
  • U.S. construction spending rose 0.8 percent in May over April and was up 8.2 percent over May 2014. For the first 5 months of the year construction spending increased 5.9 percent over the same period last year.
  • Initial jobless claims totaled 281,000, an increase of 10,000, for the week ending June 27. The 4-week moving average of claims was 274,750, an increase of 1,000.
  • ADP’s Employment Study reports the private sector added 237,000 new jobs in June. The service sector accounted for 225,000 of the new hires with small businesses (those with fewer than 50 employees) hiring half of the workers overall.
  • The Bureau of Labor Statistics projects the economy added 223,000 jobs in June while reporting the unemployment rate fell to 5.2 percent, a decline of 0.3 percent. The number of long term unemployed fell by 381,000 in June and has dropped by 955,000 in the past year. Economists are troubled by the lack of wage growth as well as the decline in labor force participation, which fell from 62.9 percent in May to 62.6 percent in June as 432,000 people dropped out of the labor force. This puts the labor force participation rate back to the same level as it was in 1977. (For June employment numbers in the foodservice industry, please see article in Foodservice News below.)
  • A bill entitled the “Franchise Bill Of Rights” advanced in the California assembly. The bill requires a terminated franchisee to receive any invested equity unless the termination was the result of a violation of the franchise contract or the law.
  • The Gallup Organization’s U.S. Economic Confidence Index continues to remain negative, meaning more Americans believe the economy is in poor shape than believe it is in good shape. For the past 2 months the index has moved in a very narrow range – minus 5 to minus 9. Actually, these scores are among the higher ones recorded since the Gallup organization began the study in 2008.
  • The Conference Board’s Consumer Confidence Index improved again in June, rising to 101.4. This is up from 94.6 in May, which had shown a modest increase over April. The Present Situation Index rose to from 107.1 in May to 111.6 in June while the Expectations Index showed a substantial jump to 94.6 from the May reading of 86.2.

Foodservice News This Week

  • Foodservice employment rose by 29,900 In June according to the Bureau of Labor Statistics. This makes the foodservice industry responsible for 13.4 percent of the total jobs the U.S. economy added in June. Foodservice now employs 11,060,000 workers in the U.S.
  • Refranchising may not be all that great an idea according to a recent analysis that Technomic Inc. made of the financial data compiled in the company’s Top 500 Chain Restaurant Report. It seems that chains with only corporate owned stores had higher rates of growth in both overall sales and same-store sales than all franchise systems. Those chains whose systems have less than 50 percent franchised locations performed a little below all-corporate owned systems while those mostly-franchised systems did a little better than those companies that are 100 percent franchised. Technomic concluded “As a rule, the less you franchised, the more you made.”
  • J Alexander’s is developing a new concept called Redland Grill. The chain plans on converting about half of its existing restaurants to the new brand, which will feature similar menus and pricing.
  • Pizza continues to grow in popularity with c-stores driving much of the volume. The NPD Group reports that pizza servings in convenience stores rose 9.0 percent in the year ending May 2015.
  • McDonald’s is becoming more flexible on menu items. The world’s largest burger chain now allows menu items not available nationally to be sold on a regional or even local basis. Last year the chain allowed franchisees to decide if they wanted to sell the famous McRib sandwich. Now a pulled pork sandwich is being sold in Indiana, a bacon and white cheddar egg McMuffin is offered in Chicago, and cranberry orange muffins are sold in the Midwest. The theory seems to be that franchisees are better judges of what will sell in their home markets.
  • New York City is moving ahead with plans to require composting by certain large food companies including major hotel restaurants and arenas. The city eventually wants all restaurants to compost food waste.
  • Corporate Stirrings: KBP Foods, LLC, a large KFC Franchisee, has purchased 24 KFC units as part of the firm’s strategy of growing by acquisition. J. Alexander’s owner, Fidelity National Financial, plans on having the company return to being publically traded on the New York Stock Exchange “soon.”
  • Growth Chains: Menchie’s Frozen Yogurt opened its 500th store and plans on having 600 locations by the end of this year. Green Turtle Development has signed an agreement for 10 restaurants in the Philadelphia area. Magnolia Bakeries has signed franchisees in Honolulu, Korea, Moscow, and Saudi Arabia. Johnny Rockets plans on opening 100 restaurants in the U.S. by the end of 2017. McDonald’s will open 4 do-it-yourself burger concept stores in China.

No New Reports Of Comparable Store Sales were released this week but for recent comp store sales data please click here for the Green Sheet.

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