Published on Tuesday, 04 March 2014
Written by Jerry Stiegler
This week we discuss a number of pleasant surprises including in the NRA’s January Performance Index, the latest restaurant unit growth data and the number of independent burger restaurants.
Given rotten weather and generally blah economic conditions, the smart money would have bet on at least a moderate decline in the January National Restaurant Association’s Restaurant Performance Index. But, in this case the smart money would have lost.
The Index reached 100.7, posting an increase of 0.2 percent, which means it remained in expansion mode. The increase came based on the expectations of brighter days to come and not on January’s customer traffic levels. The study’s Expectations Index hit 101.8, a 0.3 percent increase from December. This is the highest level the Expectations Index has been in 7 months and marks the 15th consecutive month where it exceeded 100.
The Current Situation Index managed to stay even from December at 99.5. The not so good news was that there was a net decline in customer traffic with 50 percent of those surveyed reporting fewer customers vs. 33 percent reporting more. This is based on January traffic this year over January 2013. On a more positive note, 45 percent of the operators reported same-store sales increased over January last year while 40 percent reported their comparable store sales declined.
Even with fewer customers, operators continued to invest in their businesses with 57 percent reporting they made a capital expenditure for new equipment, expansion or remodeling in the last 3 months. Even more operators plan on making capital expenditures for equipment, expansion or remodeling in the next 6 months with 64 percent of the operators planning on making an investment vs. 61 percent who said they would last month.
Economic News This Week
- Gross Domestic Product for the fourth quarter of 2013 was revised down sharply to 2.4 percent from 3.2 percent in the U.S. Department of Commerce’s second estimate. The revision was partially the result of a lower estimate of consumer spending on big ticket items such as cars and appliances. However, the consumer spending increase on these products was the fastest it has been in seven quarters.
- Initial jobless claims for the week ending February 22 hit 348,000, an increase of 14,000. The 4-week moving average stayed the same at 338,250.
- New home sales rose an unexpected 9.6 percent in January to an annual rate of 468,000. This was a pleasant surprise with experts predicting a drop to 401,000.
- U.S. Home Prices increased 11.3 percent in the 4th quarter of last year compared to the same period in 2012 according to the S&P/Case-Shiller Index of 20 major markets. The report indicated that the run up home prices will probably continue at a slower pace.
- The Affordable Care Act levies multiple taxes on consumers according an economist’s blog for the New York Times. In effect, the blog supports the conclusion of the Congressional Budget Office discussed in this space last week that the law results in lower employment.
- Durable goods orders fell by 0.1 percent in January with aircraft orders sinking more than 20 percent and auto orders dropping 2.2 percent. Without the erratic transportation section included, orders rose 1.1 percent.
- The Chicago Purchasing Manufacturer’s Index rose slightly in February to 59.8 from 59.6 in January. A double digit gain in employment offset declines in new orders, production, and order backlog. All, however, remained well in the positive range.
- Consumer confidence indices post mixed results. The Conference Board’s February Consumer Confidence Index fell to 78.1 from a downwardly revised 79.4 in January. The Expectations Index had a steep slide to 75.7 from 80.8, while the Current Situation Index rose to 81.7 from 77.3 in January. The Current Situation Index is at its highest level since April 2008. The Reuters/University of Michigan Consumer Index for February hit 81.6, up 0.4 from its mid-month reading. Finally, the Gallup Organization’s U.S. Economic Confidence Index rose to minus 15 in the week ending February 23 after being at minus 17 or lower the previous 4 weeks
Foodservice News This Week
- There are 4,100 more restaurants to choose from according to The NPD Group’s Fall 2013 ReCount study. As of September 30, the industry includes 633,000 restaurants, a 0.7 percent increase compared to the previous year. Chains added 3,000 locations accounting for most of the growth. But independents added 1,000 locations. So despite an economy that seems to be limping along, the restaurant industry continues to expand.
- Burger places continue to charge ahead. In the unit count quoted above, Scott Hume, editor and publisher of Burger Business, notes that quick-service burger restaurants grew 1.2 percent but perhaps the fascinating fact was that independent burger operations grew by 7.2 percent. Hume points out that chain burger restaurants out number independents but it is fascinating that independent operators can still find a place in a crowded segment.
- Restaurants prepare to battle for highly qualified managers and other employees. Despite a weak economy, high overall unemployment, and tough times for full-service restaurants the industry’s employment environment remains very competitive. The People Report states, “the people in charge of keeping the restaurants staffed with managers and hourly employees have expectations for increased job growth, an increasing number of vacancies, rising turnover and a tougher recruiting environment in the next quarter.”
- What happens when minimum wage goes up? According to Bloomberg Business Week here is how some restaurant chains will respond when California increases minimum wage to $9.00. Jack in the Box will increase menu prices by 1.4 percent in California. Cheesecake Factory will boost prices by 2 percent in California this year. Denny’s projects “an additional modest price increase” at its restaurants in California in July. BJ’s Restaurants anticipates a 1.7 percent menu price increase. Of course, it is unknown what impact the menu price increases will have on customer traffic and/or spending.
- Add a fifth cornerstone to quality, service, convenience and value — ambiance. A recent white paper from Technomic, Inc. revealed 91 percent of casual dining patrons say that an appealing ambience influences their decision to visit a particular restaurant.
- McDonald’s will expand its “build your own burger” program. The chain said “less than 100” operations will be involved in the test. While not directly part of the customization program, McD’s is rolling out new prep tables in 14,000 U.S. restaurants. The new equipment will accommodate more toppings and dressing than the current design.
- The Middleby Corporation stated that the company’s commercial foodservice equipment sales rose 14.7 percent in the firm’s last quarter. Without recent acquisitions, equipment sales were up 12.6 percent.
- Wendy’s will “reimage” up to 400 stores this year. The major facelift project costs from $450,000 to $650,000 per unit. The chain said that some stores will be razed and rebuilt at a cost of $1.5 million to $1.9 million each. Wendy’s management believes that the rebranding effort is one of the reasons for the chain’s rise in sales per store to $1.5 million last year.
- Growth Chains: Voodoo BBQ & Grill plans to add 10 to 15 more restaurants to its 19-unit system in the next 12 months. Luna Grill, which ended 2013 with 10 operations, plans on doubling its footprint by the end of this year and having 40 by the end of 2016. Its eventual goal is to take the concept national. Tim Horton’s will add 800 stores in the next 3 years, 300 of them in the U.S. The Smiling Moose Deli, which recently opened four new units, plans to add five more locations this year. Carl’s Jr. inked an agreement with a Canadian developer for 30 stores in the Ontario area. Dickey’s Barbeque plans to add seven restaurants in the Omaha market.
- Comparable Store Sales Reports: Applebee’s (down 0.7 percent). Bloomin’ Brands (Blended up 1.2 percent, Outback up 1.1 percent, Carrabba’s up 0.9 percent, Bonefish up 0.9 percent and Flemming’s up 4.9 percent), Carrols Restaurant Group (up 1.7 percent), Chuy’s (up 3.0 percent), Cracker Barrel (down 0.6 percent), Del Frisco’s Restaurant Group (system up 2.8 percent, Del Frisco up 5.2 percent and Sullivan’s down 0.7 percent), Domino’s (system up 3.7 percent, company-owned up 1.2 percent, and franchised up 0.8 percent), Einstein Noah Restaurant Group (up 0.1 percent), Fiesta Restaurant Group (Pollo Tropical up 7.0 percent and Taco Cabana down 2.9 percent), IHOP (up 4.5 percent). Papa John’s (up 9 percent, company-owned up 11.5 percent and franchised up 8.1 percent), and Wendy’s (company-owned up 3.1 percent and franchised up 2.8 percent.)
For full details and same-store sales of other chains, please click here for the Green Sheet