U.S. Restaurant and Bar Sales Outperform Overall Retail Sales in July

This Week in Foodservice looks at Commerce Department advance sales estimates for July as well the employment picture, economic stats and consumer sentiment in order to deliver a well-rounded picture of the economy issues surround the foodservice industry.

The Commerce Department's advance monthly sales estimates for July had overall U.S. retail sales climbing 0.2 percent over June on a seasonally adjusted basis. Sales last month were up 5.4 percent over July of last year.

Restaurant and drinking places sales were up 0.6 percent over June on a seasonally adjusted basis and were up 3.9 percent over July 2012. The Commerce Department estimates that restaurant and bar sales are up 3.9 percent for the first 7 months of this year.

There are significant limitations on this data, however. The numbers are an advance estimate based on a subsample and are subject to revision. The numbers are adjusted for seasonal variation, holidays and trade days but not for price changes. The report covers bars and restaurants. No hotels, clubs, or any of the so-called institutional foodservice segments are included.

Economic News This Week

  • First-time jobless claims for the week ending August 3 rose 5,000 to 333,000 while the less volatile 4-week moving average fell 6,250 to 335,000. At long last it appears there is a solid downward trend for layoffs but it should be noted that fewer people losing their jobs does not automatically lead to an increase in employment.
  • June employment stats were provided by the Bureau of Labor Statistics with job openings rising slightly to 3.936 million from 3.907 million in May. The number of people being hired fell in June to 4.201 million vs. 4.490 in May while the number of people separated from their jobs (quit, fired or laid off) fell to 4.031 million in June, down from 4.381 million in May.
  • Consumer borrowing grew by $13.8 billion in June according to the Federal Reserve but while non-revolving loans such as mortgages and car loans increased by 10 percent, non-revolving credit — chiefly credit cards — fell by 3.8 percent. This could be a bad sign for retailers and restaurants.
  • Decent economic growth in the United States is predicted in the Wall Street Journal's latest survey of economists and other analysts. The article acknowledges that "decent" is "some distance from good." Those surveyed feel the economy's status is probably strong enough for the Federal Reserve to start pulling back from the current policy of stimulating the economy through bond purchases. More than half of those who answered the survey believe the pull back will start as early as September. And while there is only a 15 percent chance of hitting another recession in the next 12 months, the survey results show only a 13 percent chance of the economy reaching the average GDP growth of 3.5 percent this year.
  • Spending was flat in July, according to the Gallup Poll's "self reported" survey with consumer's daily spending at $89, virtually identical to the $90 spent per day in both May and June.
  • The Gallup Economic Confidence Index in July was minus 12, the lowest the index has been in any month since April. However, from a long range perspective, Gallup points out that July's score was still one of the best monthly averages since 2008. In October 2008 the Index was down to minus 60.

Foodservice News This Week

  • Casual dining restaurants struggled in July with Knapp-Track reporting comparable-store sales down 3.8 percent vs. July 2012 based on the 50-plus chains in the program. Traffic counts were down a steep 5.1 percent while check average rose 1.3 percent. Mr. Knapp stated there was an "incremental weakness" in June and July that was difficult to explain. Possible factors contributing to the weakness may include sequestration effects, spending in other areas (cars and housing), higher gas prices, and job growth skewed to lower income jobs. Knapp-Track Data is courtesy of Bank of America Merrill Lynch.
  • Giant distributor Sysco reported sales of $11.6 billion, a 5 percent increase in sales over the company's corresponding financial quarter ending in June 2012. The company stated that their food cost inflation was 2 percent and that acquisitions accounted for 2.1 percent increase in sales. Foreign exchange rates decrease sales by 0.1 percent. Further, Sysco said that case volume was up 3 percent including sales from acquisitions and up 0.8 percent excluding acquisitions. Net earnings were down 8.5 percent. For the fiscal year, sales were up 4.8 percent to $43.4 billion.
  • Middleby Corporation, manufacturer of a broad array of foodservice equipment, announced that sales rose over 39 percent in their most recent fiscal quarter.
  • Restaurants owners are seeking capital more this year when compared to 2012, according to a new analysis by the Capital Access Network who found requests for funding are up 39 percent. The study showed 32 percent of the requests were for capital to buy new equipment and/or increase inventory.
  • Ninety-six percent of Americans eat fast food according a recent Gallup study, with 3 percent of Americans eating it every day and 80 percent eating fast food at least monthly. The data does suggest that consumers "are reducing, but not totally eliminating, their fast food intake." When asked their opinion of fast food nutrition 76 percent of those surveyed said "not too good" (48 percent) or "not good at all" (28 percent).
  • Healthy eating out has been a topic in several recent articles and studies. The NPD Group found that roughly half of Americans claim to eat healthy at home but less than 25 percent will attempt to eat healthy when they dine out. The Gallup Poll found that less than half of consumers look at restaurant nutritional facts and a study by Stanford University discovered that average calories per purchase fell 6 percent when calorie counts appeared on the menu. Let's face it, 6 percent isn't a lot.
  • McDonald's July comp store sales rose 0.7 percent on a corporate basis but all the increase came from the U.S. with comps up 1.6 percent, which beat estimates. All other geographical areas were down. The company stated that the return of the Monopoly game was a factor in the sales increase. Total dollar sales for the company were up 1.6 percent and up 3.3 percent with constant currency exchange rates.
  • Ever hear of the Big Mac Index? Thanks to Scott Hume of Burger Business we've learned that the Economist uses prices of the ubiquitous Big Mac around the world to measure currency valuations and see if they are over- or under-valued. The Economist's website says the Big Max Index is a lighthearted guide whether currencies are at their "correct" level.
  • Wendy's new flagship restaurant is 1,100 square feet larger than the average Wendy's because it has a community room/dining area featuring memorabilia that relies heavily on founder Dave Thomas. (In KFC's new fast-casual concept Colonel Sanders is nowhere to be found.) The CEO said the new restaurant gives the chain a venue to test new equipment.
  • Growth chains: Dunkin' Donuts will be opening 19 new restaurants in South Texas with an existing franchisee. Dunkin's franchisee in Rochester, N.Y., will open 10 to 20 new units over the next few years. Round Table Pizza is planning to open restaurants in Mongolia. Wok Box, headquartered in Alberta, Canada, is developing new locations in Ontario, Alberta, Qatar, Florida, Texas, and Arizona. KFC's regional franchisee in Russia plans on accelerating growth and having 450 units by 2015. Smashburger has signed a total combined commitment for 19 units across the U.S., bringing the chains "total active franchise pipeline to approximately 300 locations" to open in the next several years. Boston Restaurant and Sports Bar announced a franchise agreement for 5 new restaurants in Mexico. Cici's Pizza will open up to 15 new restaurants in New York city and northern New Jersey.
  • Comparable store sales reports: Arcos Dorados (up 11.6 percent), Brinker International (Chili's down 0.3 percent and Maggiano's up 0.2 percent), Carrols Restaurant Group (up 1.4 percent), Chuy's (up 2.1 percent), Fiesta Restaurant Group (Pollo Tropical up 6.4 percent and Taco Cabana up 1.1 percent), Jack in the Box (system up 0.1 percent, company-owned up 1.2 percent, and franchised down 0.3 percent), McAlister's Deli (up 6.4 percent), McDonald's (up 1.6 percent), Mitchell's Fish Market (down 1.4 percent), Noodles and Company (system up 4.4 percent, company-owned up 4.7 percent and franchised up 2.1 percent), Papa John's (North America up 3.4 percent, company-owned up 6 percent and franchised up 2.6 percent), Qdoba (system up 1.3 percent, company-owned up 0.5 percent, and franchised up 2.1 percent), and Tim Horton's (up 1.4 percent).

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

Equipment Supplier Financial Data: New quarterly financial reports for Middleby Corporation and Sysco are shown.

 

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