- Published on Tuesday, 30 July 2013
- Written by Jerry Stiegler
While a variety of economic indicators continue to show improvement over the last year's performance, they still continue to lag behind what many consider to be healthy levels. So what does that mean for the foodservice industry? It will remain in a take-share mode for a while longer.
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With most of June's data now available, it is possible to see where the economy and the foodservice industry stand at midyear.
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It appears that a lot of industries are doing well, such as the automobile and commercial aircraft segments. Most of the housing market data indicates a continuing recovery, but it is important to note that sales are 30 percent to 40 percent less than what some think is an average or healthy level. The housing market is an important factor in the economy that affects everything from the sales of drapery rods to contractors' pick up trucks so until we get at least close to a normal number of sales the economy will not be truly vibrant.
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The manufacturing segment, which more or less led the way out of the recession, softened in the first half of the year. Some of this is due to shrinking economies overseas. Europe is basically a mess and China's economy has slowed significantly as is the case with Mexico, another major trading partner for the United States. All this put the brakes on exports.
The employment picture represents perhaps the biggest cloud hanging over the economy. Some observers see substantial improvement in the job market while others believe the United States has experienced a "jobless recovery." One disturbing statistic is that real median household income remains below pre-recession levels four years into the recovery.
As for the foodservice industry, most of the available data seems to indicate some real growth in the first half of the year. Maybe the most positive factor is that a lot of people who tell researchers they plan to cut back eating out haven't. Total sales volume seems to be holding up and new restaurants continue to open. Commodity costs are manageable and the tough job market makes for a decent supply of foodservice workers.
Looking ahead to the second half of this year, the majority of economists do call for some improvement. It is true that this has been a very weak recovery, there is a lot of uncertainty on the part of consumers and business leaders, and this fragile situation could be derailed by some external shock.
As for foodservice, we believe slow growth should continue through December but those suppliers who wish to expand sales faster than this can take a few steps. This includes introducing (successful) new products, taking share from competitors and targeting those operators who are growing faster than the market. We didn't say it was going to be easy.
Economic News This Week:
- First-time jobless claims hit 343,000, up 7,000, while the previous week's claims were revised up to 336,000. The less volatile 4-week moving average rose to 345,250, an increase of 1,250.
- Fewer young adults were employed full time this year. The Gallup Organization said one of its polls shows 43.6 percent of 18- to 29-year-olds were working full time jobs vs. 45.8 percent in June 2011 and 46.3 percent in June 2010. Gallup also said 65.4 percent of those young adults with college degrees were working full time while just 38.6 percent of those without degrees had full-time jobs. (The latter number probably includes students working on their college degrees.)
- Existing home sales declined 1.2 percent in June to an annualized rate of 5.08 million. Despite the decline, June sales were still the highest since November 2009. The National Association of Realtors (NAR) said higher mortgage rates as well as higher prices in markets such as California and New York may have impacted sales. The NAR also noted that home prices increased 13.5 percent compared to June of last year and are now at their highest level since June 2008.
- Pending home sales fell 0.4 percent in June according to the National Association of Realtors. Still, this represents a 10.9 percent increase compared to June of 2012.
- New home sales increased 8.3 percent to an annualized rate of 497,000 sales in June, according to the U.S. Department of Commerce. This represents a 5-year high and a 38 percent increase compared to June 2012.
- Durable goods orders increased 4.2 percent in June and May durable goods orders were revised up to 5.2 percent. Orders have increased for three straight months, with the transportation segment leading the way. Most segments were up, including machinery and fabricated metals. Shipments were essentially flat but unfilled orders rose 2.1 percent leading some experts to theorize that the sale of durable goods will be stronger in the second half of the year.
- The Reuters/University of Michigan final consumer index for July reached 85.1, up from 83.9 in the preliminary July study. This represents a 13 point increase compared to July 2012 and the index's highest level since July 2007. The index has not hit 100 since November 2000 and in the years prior to the last recession was in the 90s.
- After hitting a 5-year weekly high of minus 3 in late May, Gallup's U.S. Economic Confidence Index has been slowly falling in June and July and now stands at a minus 12.
- Fewer young adults were employed full time this year. The Gallup Organization said one of its polls shows 43.6 percent of 18 to 29 year olds were working full time jobs vs. 47.0 percent in June of last year, 45.8 percent in June 2011 and 46.3 percent in June 2010. Gallup also said 65.4 percent of those young adults with college degrees were working full time while just 38.6 percent of those without degrees had full time jobs. (The latter number probably includes students working on their college degrees.)
Foodservice News This Week:
- Fast-food sales vary significantly from state to state according to a study from the Intuit Consumer Spending Index. Oklahoma residents spend slightly more than $100 a month while Vermont consumers spend just $28 per month. The study's authors pointed out that, in part, the variances are a result of opportunities to eat at an array of restaurants. New Yorkers have thousands of restaurants to choose from while citizens of mostly rural states may only have a handful of options. New York residents, incidentally, came in as the second lowest buyers of fast food at $47 a month.
- Illinois Tool Works announced that sales of food equipment increased 3 percent in the company's most recent quarter. (Please see the link to Supplier Financial Data below.)
- Manitowoc announced that their sales from its foodservice equipment group increased 0.8 percent in the company's most recent financial quarter. (Please see Foodservice Supplier Financial Data below.)
- Taco Bell is dropping kids' meals. The food items themselves will move over to the regular menu but toys will not be available. According to the chain's CEO, kids' meals made up less than 1 percent of Taco Bell's sales. This calls to mind the old restaurant rule that any item that is ordered by less than 2 percent of the patrons shouldn't be on the menu.
- Foodservice hiring is booming reported Bloomberg's Businessweek. The article quoted spokespeople from Red Robin, Domino's and Wingstop who essentially said that business is so good the chains need to add employees.
- Gordon Foodservice will open a new 420,000-square-foot distribution center near Pittsburgh that will eventually employ 300 people. The firm is also building distribution centers near Atlanta and in their home state of Michigan.
- Located in the heart of New York's financial district's, 7-Eleven's new store offers free Wi-Fi, a huge TV and an Amazon Locker where Amazon customers can pick up their orders. The store can seat 25 people and the menu has "healthy options" not found in most 7-Eleven locations. 7-Eleven's goal is to become everyone's neighborhood store.
- Bruster's Real Ice Cream has a new prototype featuring seating as part of the company's "four season initiative" in the it hopes will attract a broader base of franchisees.
- Growth chains: Dickey's Barbecue has a franchise agreement that will develop nine units in central California. NPC International has purchased 22 Wendy's restaurants from the parent company plus 2 units currently in development. Krispy Kreme plans to open 60 locations in South Korea in the next 5 years. Pie Five Pizza plans on opening up to 12 restaurants in Baltimore. Quizno's has opened two units in St. Petersburg, Russia which the chain describes as "the first of hundreds."
- Comparable store sales reports: The Cheesecake Factory (up 0.9 percent), Denny's (system wide sales up 0.6 percent, company owned units were down 0.5 percent, and franchised locations increased 0.7 percent), Domino's (up 6.7 percent), Dunkin' Donuts (up 4.0 percent), Famous Dave's (company owned locations increased 1.1 percent and sales at franchised units declined 3.9 percent), Frisch's (up 1.0 percent), Grand Lux (up 0.1 percent), Morgan's Foods, Inc. (up 5.8 percent), Panera Bread Co. (system wide sales increased 3.7 percent, company owned locations were up 3.8 percent and franchised locations were up 3.5 percent), Ruby Tuesday (sales at company owned stores declined 3.1 percent and franchised locations saw sales decline 5.1 percent), Starbucks (up 9.0 percent), Texas Roadhouse (company owned locations saw sales increase 4.5 percent and franchised locations experienced a 5.3 percent in sales) and Wendy's (company owned stores saw sales increase 0.4 percent and franchised units increased 0.3 percent).
For details as well as same store sales for other chains, click here for the Green Sheet.
Foodservice Supplier Financial Data: This week there are the most recent financial reports for Cintas, Illinois Tool Works, Manitowoc and Newell Rubermaid. Please click here for the full report.