Operators Remain Concerned for the Future, Canadian Chain Sales Up

Restaurant operators may be doing OK for now but they remain concerned about the future. Plus, the latest report on the Gross Domestic Product disappoints, Canadian chains' sales grow and much more in This Week in Foodservice.

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The National Restaurant Association's Restaurant Performance Index provided split results in August with the Current Situation Index rising 0.6 percent to 100.7 driven by increases in both comparable store sales and traffic. But the overall Index dropped 0.2 percent to 100.5 due to a substantial fall of 0.9 percent in the Expectations Index to a level of 100.4. This marks one of the few times in the history of the NRA's RPI that operators feel the present situation is better than the future.

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The good news is, of course, that both sub-indices remain in positive territory as is the case for the major index, which indicates that the industry continues to enjoy a period of expansion.

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Capital investment results were also mixed. The report stated that 53 percent of operators made a capital expenditure for equipment, expansion and/or remodeling in the last three months. This is the fourth straight month that better than half of respondents indicated they had done so. In keeping with their overall cautious feelings about the future, 45 percent of operators plan for capital expenditures in the next 6 months which is down from 53 percent in July.

So, overall, the August RPI projects a positive outlook for the near term.

Economic News This Week:

  • Gross domestic product stayed up 2.5 percent in the second quarter, according to the U.S. Department of Commerce's third estimate, which matches the previous one. This disappointed some economists and others who projected an increase of 2.7 percent or 2.8 percent. The Department said state and local spending were higher than originally estimated while warehouse restocking and exports were lower which kept growth at the same level.
  • Initial jobless claims fell 305,000, a decline of 5,000 for the week ending September 21. The state of California said it cleared its backlog of claims but a spokesperson for the U.S. Department of Labor was cautious about putting too much faith in the numbers from this past week and wanted to see another week's results. There is no question that claims are trending lower from the first half of this year when they hung in the 350,000 range. If claims stay at less than 320,000 they will remain at roughly the same level for the two years prior to the recession.
  • Durable goods orders rose just 0.1 percent in August, according to the U.S. Commerce Department. However, without defense spending and the very volatile commercial aircraft orders, durable goods orders were up 1.5 percent. One observer stated that orders were not weak overall but do not point to acceleration in the economy.
  • The Chicago Federal Reserve's Production Manufacturing Index rose to 55.7 percent in September from 53 in August. Any number in excess of 50 indicates expansion and this was the third straight month of growth. All components of the Index increased, including a major increase in shipments. The exception was employment which hit a four-month low.
  • Personal spending, one of cornerstones of a healthy economy, rose 0.3 percent in August. In the last 12 months personal spending increased 3.7 percent. This is the about one half the "normal" rate of spending growth. The U.S. Bureau of Labor Statistics did revise July personal spending from 0.1 percent to 0.2 percent.
  • Personal income grew 0.4 percent, the biggest increase in 6 months. With income rising faster than spending, the savings rate was also up in August.
  • Home prices increased in July at the highest rate in seven years according to the Standard & Poor/Case Schiller Index. With higher interest rates and overall economic uncertainty, it is questionable if housing prices will continue to grow at the same rates.
  • Mortgage applications shot up 11.2 percent for the week ending September 13 according to the Mortgage Bankers Association as interest rates fell slightly.
  • Consumers around the world feel they are still in a recession according to Nielsen. Even though the recession technically ended in 2009, Nielson found 72 percent of those surveyed said the recession continued.
  • U.S. consumer confidence dipped in September with the Conference Board reporting a decline to 79.7 from the August reading of 81.5. The Reuters/University of Michigan Consumer Index fell to 77.5 from 82.1 in August. And, Gallup's Economic Confidence Index fell to minus 20, the lowest the index has been since March.

Foodservice News This Week:

  • Chain restaurants in Canada are doing well. Technomic reported the top 200 restaurant chains saw sales increase 4.3 percent in 2012 and now account for roughly 60 percent of total Canadian restaurant sales. Limited service restaurants sales grew 4.9 percent, units grew 2.6 percent and LSRs are almost three quarters of the Top 200 sales. Full service restaurants increased their sales by 2.5 percent while enjoying a 1.6 unit growth. Tim Horton's remains the largest Canadian chain.
  • Retail operations are eating restaurants' lunch according to a new study by The NPD Group. Retailers have seen the visits for prepared lunches grow 29 percent since 2008, coming at the expense of restaurants. NPD says that factors influencing this trend include the availability of healthy options, good variety of foods and affordability.
  • Restaurant advertising was up a strong 12.6 percent in the second quarter of the year according to Kantar Media. Scott Hume, editor and publisher of Burger Business, points out restaurant sales growth has been slow and chains are trying to increase sales by taking share from competitors.
  • Phony restaurant reviews have earned the attention of New York regulators. According to the New York Times, there are "reputation enhancement firms" that get paid for placing fraudulent reviews online.
  • Gordon Foodservice broke ground for a new distribution center on 62 acres near the Pittsburgh International Airport.
  • Major financing in the amount of a $100 million credit facility for Wendy's franchisees to support the company's rebranding program has been provided by GE Capital's Franchise Finance.
  • Bob Evans has been advised to sell off its food products division and sell its real estate under a sale-leaseback arrangement. Financial guru Jim Cramer of the TV show Mad Money offered the advice.
  • Morgan's Foods, which operates 56 KFC restaurants as well as 16 other YUM branded units in 6 states has engaged a financial advisor to "explore strategic alternatives" including joint ventures and "other strategic alliances." Usually this means the company will be putting themselves up for sale.
  • Buca di Beppo delivers. The chain has signed an agreement with Go Waiter, a national restaurant delivery firm, to provide service in 11 markets including Jacksonville and Miami.
  • A "Pizza Theater Store" by Domino's has opened in Austin, Texas. The concept includes chairs overlooking the kitchen so customers can watch their pizza being prepared. Papa Murphy's has a prototype called "Create" in the Austin area that also puts the pizza making process at center stage according to the Austin Business Journal.
  • MAAPCO has opened a store in Clarksville, Tenn., that clearly divides the C-store side from the foodservice side. The latter features MY Deli, offering made to order sandwiches, salads and other foodservice menu items. In addition there is an expanded beer cooler and beer cave as well a "growler beer program" where customers can fill jugs with craft beers from the tap.
  • Ruby's Diner has introduced a 1960s theme dinette in a San Diego mall. The new concept offers "higher end fast food." The chain plans to open five more of the fast-casual restaurants in the next six months.
  • Growth chains: YoFresh Yogurt Café, with 37 shops in 11 states, has a goal of 52 franchised stores by the end of 2014. Wild Wing Café is looking to open two or three units in Memphis. Red Robin will soon open new restaurants in Chicago, St. Petersburg, Fla. and Paramus, N.J. Porkie's Original BBQ signed a franchise agreement to expand into Florida with four or five locations next year. Darden signed a development agreement with an Asian operator to develop 13 restaurants using the Red Lobster, Olive Garden and Longhorn brands. The MAAPCO c-store chain has opened 12 new stores this year and plans on adding 20 more every year. Boston's Restaurant & Sport Bar will open 3 restaurants in Orlando in the next 3 years. Krispy Kreme has signed an agreement to open 25 stores in Columbia over the next 5 years. Subway has announced their goal is to double the number of units in the Middle East and Africa to 1,000 by 2015.
  • Comparable store sales reports: Pizza Inn reported their franchised store comparable sales were down 3.2 percent.

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

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