Published on Tuesday, 22 April 2014
Written by Jerry Stiegler
This Week in Foodservice: Mixed Results in Economic Data, McDonald’s Soft Quarter, Several Chains Announce New Partnerships and Strategies
This Week In Foodservice reports on a stock analyst’s cautious optimism for restaurant performance this year, looks at menu price inflation, reviews conflicting views on the minimum wage and a whole lot more.
The team that follows restaurant chain stocks for Merrill Lynch examined the restaurant business for the first quarter of 2014 and saw some positive signs that may point to an improved foodservice market. First, with the rotten winter weather over, Merrill sees better conditions for a lot of the economy in general as well as for the restaurant market. Second, they believe that the employment picture is slowly improving and that there is a correlation between the weather and employment data and the sales performance of restaurants. Third, they forecast improving disposable income, which should also lift restaurant sales.
Merrill also reported that the Knapp-Track survey for March found same-store sales for the 50-plus casual chains covered by Mr. Knapp were down 1.7 percent. Same-store guest counts were down 3.6 percent, which would indicate that same-store check increase of 1.9 percent. Mr. Knapp believes weather was a factor.
Mr. Knapp also pointed out that comparable-store sales were up a strong 2.6 percent in March 2013 with guest counts up 1.1 percent — the only month last year when guest counts were positive. This makes same-store sales comparisons difficult this March. And while Malcolm Knapp agrees the numbers are weak, he said an increasing number of concepts were turning positive.
Economic News This Week
- First-time jobless claims rose by 2,000 for the week ending April 12. The total number of claims remained low at 304,000. Even more encouraging was the drop of 4,750 claims in the 4-week moving average to 312,000, which is the lowest since October, 2007.
- The Consumer Price Index for Marchrose 0.2 percent with food and housing prices accounting for most of the increase. Food prices rose 0.4 percent with meats, poultry, and eggs rising 1.2 percent. Energy prices fell 0.1 percent, which left the “core” index (total prices minus food and energy) up 0.2 percent. Two thirds of the core price index was the result of both rent and owners prices increasing 0.3 percent. In the last 12 months prices for all consumer products are up 1.5 percent with food prices up 1.7 percent.
- Confusion still the norm for Obamacare. While some have hailed the mandate delay in the new healthcare law as a positive move, some operators think it adds to the confusion. Managers looking for clear answers will find them few and far between, according to a recent article on CSPnet.com. The situation is further complicated by the proposed minimum wage increase, and businesses hate uncertainty.
- Industrial production grew 0.7 percent in March, better than the consensus forecast. The Federal Reserve reported that manufacturing grew 0.5 percent, mining output rose 1.5 percent and utilities output increased 1 percent. The Fed also revised February industrial production up from 0.7 percent to 1.2 percent. February’s increase was the highest since May 2010. And, the Federal Reserve reported that March Capacity Utilization was 79.2 percent, the highest rate since June 2008.
- The Empire State Manufacturing Survey from the NY Federal Reserve Bank was virtually flat in April at 1.3. Zero would indicate no increase in business activity. The new orders index slipped into negative territory at minus 2.8 but the employment showed a modest rise and slight increase in the average work week.
- The Philadelphia Federal Reserve’s Survey of Business Activity Indexrose to 16.6, a substantial increase from 9.0 in March. Any reading over zero shows increasing manufacturing activity. The indices for new orders, shipments and employment all grew.
- Housing starts in March were at a seasonally adjusted annual rate of 946,000, which is 2.8 percent above the February estimate but 5.9 percent below the March 2013 starts. The US Census Bureau also found that March Building Permits were at an adjusted annual rate of 990,000. This is 2.4 percent less than the February number of permits issued but 11.2 percent more than the March 2013 estimate. Single-family home permits were up 0.5 percent over February’s estimate.
- The Leading Economic Indicatorsrose 0.8 percent in March, the third straight month the index increased. A spokesman for the Conference Board said the economy seems to be gaining momentum and they believe this should continue through this summer.
- The Gallup US Economic Confidence Indexremained steady at minus 16 for the week ending April 13. The index has moved in a very narrow range this year, from minus 13 to minus 20.
Foodservice News This Week
- Prices for food away from home increased 0.3 percent in March. In the last 12 months prices for food away from home have grown 2.3 percent while food at home prices are up 1.4 percent.
- Two restaurants praised for paying above minimum wage. President Obama visited a Michigan’s Zingerman’s Deli where he enjoyed a Reuben sandwich and praised the owners for paying generous wages. Meanwhile, Secretary of Labor Tom Perez praised the East Coast burger chain Shake Shack’s above minimum wage starting salaries. But an op-ed piece in the Wall Street Journal pointed out that Mr. Obama’s Rueben cost him $14 while the Shake Shack’s cheapest double hamburger sells for $6.90 or about 40 percent more than what a nearby McDonald’s gets for a double quarter pounder.
- McDonald’s reported a soft quarter with comparable store sales up 0.5 percent. U.S. comps were down 1.7 percent for the quarter and 0.6 percent in March. Total corporate sales rose 1.4 percent in the quarter. McD’s management stated they expected April comp store sales to be “modestly positive.”
- Crumbs Bake Shop announced a new strategy. With the cupcake craze fading, Crumbs has closed 17 stores and now will focus on selling their branded products in retailers including super markets and wholesale clubs.
- The Murphy USA c-store chainplans on using their partnership with Wal-Mart to increase their sales by building larger format stores on the Wal-Mart sites. Murphy usually buys the land under the fuel sites in the Wal-Mart parking lots.
- Burger King will upgrade its Wi-Fi service. The chain says the new plug and play service from AT&T offers BK guests easy set-up, quality connectivity, a streamlined option package, and is called — of course — WHOPPER WiFi.
- Corporate Stirrings: Carrols Restaurant Group, the large Burger King franchisee, announced the launch of a public stock offering.
- The COSI restaurant chain is moving their corporate headquarters from Deerfield, Ill., to Boston.
- Mrs. Field’s Cookies announced a co-branding partnership with TCBY. Mrs. Field’s was hurt by declining traffic in lower and mid-tier malls as well as from competition from chains like Cinnabon. The new plan with TCBY will focus on strip centers and other non-mall locations. Both chains are owned by Famous Brands International.
- Growth Chains: McAlister’s Deli has signed a multi-unit development agreement for three restaurants in the Cleveland area. Villa Enterprises has signed an agreement to open 40 Villa Italian Kitchen quick-serve restaurants in regional malls throughout the United States. Wahlburgers has signed agreements with different franchisees for five units in the Philadelphia area, two units in the Boston area and one in Toronto. Uncle Maddio’s Pizza has signed an agreement with a franchisee for five stores in Florida. Rita’s Italian Ice has awarded an area development agreement for 20 stores in the Twin Cities area by 2020. Sonic Drive In has set a growth target of adding 1,000 drive ins in the next 10 years. Smoothie King plans to add 900 new locations over the next 4 years.
- Comparable Store Sales Reports: Chipotle (up 13.4 percent), Kona Grill (up 6.2 percent), McDonald’s (down 0.6 percent) and Smoothie King (up 7.2 percent).
For detail and the same-store sales of other chains, please click here for the Green Sheet.