While Gross Domestic Product increased the National Restaurant Association's Restaurant Performance Index slipped into contraction mode. Much like the overall U.S. economy, it seems as if the foodservice industry will continue to ride this roller coaster for a while.
In its latest Restaurant Performance Index, the National Restaurant Association reported that the Current Situation and the Expectations components were less than the critical 100 threshold, indicating that the foodservice industry is contracting. This is the first time in 14 months the Restaurant Performance Index was less than 100. The Current Situation Index fell 0.6 percent to 99.3 while the Expectations Index fell 1.2 percent to 99.7, which left the overall index at 99.5.
The Current Situation Index was hit by declining customer traffic and employment but on a positive note slightly more operators reported increasing same store sales than reported declining same store sales.
The Expectations Index showed operators turning pessimistic pretty much across the board. Operators suddenly turned bullish on general economic conditions. In September, 26 percent of those surveyed expected better conditions in 6 months and 18 percent expected worse conditions in 6 months. In October, 20 percent of operators expected better conditions in 6 months and operators expecting worse conditions jumped to 38 percent. This is the highest level in almost four years.
Looking for some sort of silver lining in the report, operators' capital expenditures for expansion, remodeling and/or major equipment declined just slightly. Forty six percent of the operators said they made an investment in the previous 3 months, down from 49 percent in September. Interestingly, the percentage of operators planning capital investments in the next 6 months actually increased in October to 50 percent, up from 44 percent in the previous month.
Economic News This Week
- Gross Domestic Product rose 2.7 percent according to the second estimate by the Federal Reserve. This is the best third quarter GDP in five years. GDP was driven by higher exports and increased corporate inventories. Some experts were troubled by a drop in consumer spending to +1.4 percent from the first estimate of +2.0 percent. And, business investment in the quarter was minus 1.3 percent from the second quarter.
- Small business owners have turned sour on the future. A survey in November by Vistage International, Inc. and the Wall Street Journal of small business owners found overall confidence fell 95.3 in September to 83.9 in October. Chief concerns are higher taxes and increased healthcare insurance costs. Small business owners are responding by planning to reduce their staffs (16 percent) and cutting back on fixed investments (23 percent). A similar study by Gallup found small business owners to be very pessimistic as well. The reports did not identify if any of those surveyed are in the foodservice business.
- Manufacturing continues to stumble. The Commerce Department found durable goods orders were flat in October. The Chicago Fed's Production Manufacturing Index moved back into the positive side at 50.4. The Chicago Federal Reserve said in their region production and employment were up but new orders were down. The Institute for Supply Management's national manufacturing index fell to 49.5 in November. Orders and production both increased but employment fell.
- Personal income was flat in October while personal spending fell 0.2 percent according to the Bureau of Labor Statistics.
- New home sales fell 0.3 percent in October vs. September. This is an annual rate of 368,000 according to the Commerce Department. Meanwhile, the National Association of Realtors stated that pending home sales rose 5.2 percent over September and up 13.2 percent over October last year. An article in the Wall Street Journal entitled "Now, Homes Drive Economy" said that rising home prices make home owners feel better about the economy but also noted that while interest rates are low loans are tougher to get.
- Auto sales were strong in November with virtually all the major manufacturers reporting increased sales of cars and light trucks, hitting an annualized rate of 15.5 million vehicles, which is the highest since January 2008. Hurricane Sandy, which was responsible for reducing sales in October in the Northeast, now is credited with boosting sales as insurance companies write out checks for cars destroyed by the storm.
- Initial jobless claims fell by 23,000 to 393,000 for the week ending November 23. The more reliable 4 week average was 405,000. Once again experts warned that we are more than a month away from being able to determine a meaningful direction due to Hurricane Sandy and seasonal factors.
Foodservice News This Week
- A Fast Food "Strike" in New York seems to have generated some media coverage but not much else. About 20 fast food locations, mostly in Manhattan, were picketed last Thursday. A group called the NY Communities for Change evidently arranged the action. The organization is a successor group to Acorn, according to Crain's New York Business.
- Retailers are adding food and beverage operations to attract and hold customers, according to an article in Business Week. Companies like Tommy Bahama's, Banana Republic, Urban Outfitters Terrain, and J.C. Penny offer everything from juice and coffee bars to cocktails to upscale white table cloth menus.
- O'Charley's is redesigning their restaurants in an attempt to recapture the image of the restaurant in the 1970s. The new look includes the menu and will cost $200,000 to $250,000 per location at a total cost to the company of $30 million to $40 million.
- Flying J Travel Centers has launched breakfast and soup bars in their 650 locations.
- Buffalo Wild Wings had real life follow one of their commercials on Sunday, November 25 when the sprinkler system at Miami's Sun Life stadium inexplicably turned on during the Dolphins/Seahawks game. The chain has been running a commercial featuring a fan starting a sprinkler system at football game so he and his friends can continue watching the action at Buffalo Wild Wings.
- Kona Grill announced a total make over of their restaurant in Chandler, Ariz. There was no indication about the cost of the remodeling or if the chain plans to expand the new look to other locations.
- McDonald's is testing a delivery program in Japan.
- Growth Chains: Starbucks is planning on having 800 stores in tea drinking China. Quaker Steak & Lube has signed a development agreement that will bring four restaurants to the Houston area. Fresh To Order will add eight new restaurants in the Orlando area.
- Comparable Store Sales: Just one up date this week - Cracker Barrel (up 3.3 percent).
For details and information on other chains comp store sales, please click here.