Operators Concerned about Sysco Merger, Unit Growth Flat and More

 

Consumers kept a tight grip on their wallets in July, according to the U.S. Commerce Department but restaurant sales kept chugging along. Also, the NPD Group provides an update on unit growth while another study finds foodservice management optimistic about the future though they expressed some concerns about the Sysco/US Foods merger.

U.S. retail sales were virtually flat in July over June but were up 3.7 percent over July 2013. In the first 7 months of the year, retail sales have risen 3.7 percent, according to the Census Bureau’s advance sales estimates.

Bars and restaurants outperformed total retail sales, rising 0.2 percent in July over June. Restaurant and bars sales rose 6.2 percent over July last year. In the first 7 months of this year, sales were up 4.6 percent.

The caveats for the data above is as follows: The July sales are considered advance numbers and are subject to revision. The Census Bureau surveys only restaurants and bars. Other foodservice segments – hotels, resorts, C-stores, supermarkets, clubs, schools, colleges, healthcare and employee feeding are not included. Finally, the data is adjusted for seasonal differences including holidays, weekends, etc. but not for menu price increases. Sales numbers for the first 7 months are not adjusted.

Economic News This Week

  • Job openings hit a seven-year high in June with the U.S. Bureau of Labor Statistics reporting the U.S. had 4.7 million jobs available. The number of workers hired ticked up to 4.8 million from 4.7 million in May. The Bureau also reported that 2.53 million workers quit their jobs in June, up from 2.49 million in May. More workers voluntarily resigning their jobs is thought to indicate confidence that they can obtain other work.
  • Initial jobless claims rose by 21,000 in the week ending August 9. Despite the steep jump the number of claims, 311,000, is well within the “normal” or accepted range. The less volatile 4-week moving average increased by 2,000 to 295,750.
  • The Producer Price Index rose 0.1 percent in July after a 0.4 percent increase in June. Final Demand food prices were up 0.4 percent while energy prices declined 0.6 percent. So called “core prices” — without food and energy — were up 0.2 percent for the month. In the past 12 month the PPI is up 1.7 percent. Thus, it appears inflation is under control but the U.S. Federal Reserve has established a target of 2 percent for inflation.
  • Industrial production rose at a higher than expected 0.4 percent in June marking the sixth straight monthly increase. Manufacturing output was up 1 percent and mining output increased 0.3 percent. Utilities output declined 3.4 percent due to cooler weather than normal. The U.S. Federal Reserve also reported that capacity utilization increased 0.1 percent to 79.2 percent for the month.
  • The New York Empire State Manufacturing Survey retreated 11 points in August to 14.7 but the July score of 25.6 was a 4-year high. Any number over zero indicates expansion so the August reading shows substantial manufacturing activity in the New York area.
  • Gallup’s study of “Most Important Problems” has found Americans concerns with government/politicians and the economy in general drifting lower since the first of the year while worries about immigration has roughly tripled.
  • Gallup’s U.S. Economic Confidence Index fell 2 points to minus 17 for the week ending August 10. This was an improvement from the minus 21 that the index hit the end of July.
  • The Reuters/University of Michigan Consumer Sentiment Index preliminary August reading unexpectedly dropped to 79.2 from the final reading of 81.8 in July. In the year before the start of the recession in December 2007 the Consumer Sentiment Index averaged 86.9 so consumers are nowhere near a recovery in their feelings about the economy.

Foodservice News This Week

  • Slow traffic means slow unit growth, according to The NPD Group’s ReCount. In the year ending March 31, ReCount says there were 635,494 restaurants in the U.S., an increase of 5,002 units. This is just a 0.8 percent increase with chains accounting for 80 percent (3,718 units) of the growth and independents adding 1,284 locations. It is interesting to note there was indeed some growth in independent units as some industry observers hold that independents are being run out of business by the chains. ReCount projects there are 351,359 independent operations in the U.S.
  • Operators are bullish about the next 3 years with 75 percent of senior foodservice decision makers believing business will be better, according to a survey by LEK Consulting. The study also found that over 60 percent of those surveyed believe that the merger of Sysco and U.S. Foods will result in higher prices and a smaller choice of products. Finally, operators feel manufacturers are not paying attention to the operators’ needs and are not providing customized solutions for their problems.
  • A bill to protect franchisees from being closed by the franchisor is being considered by the California State Assembly. The bill, which has already passed the California Senate, was inspired at least in part by McDonald’s dealing with McDonald franchisee according to a story on MSNBC.
  • The fastest growing retail companies in the U.S. include Chick-fil-A at #3 and Starbucks at #10 according to STORES Top 100 Retailers report. Amazon was #1 in the study.
  • Is Seattle’s $15 an hour minimum wage a “disaster?” The president of the Independent Woman’s Forum thinks so, stating it will limit job opportunities for young adults, particularly minorities. Carrie Lukas says the unemployment rate in the Seattle area for 16-19 year olds with less than a high school education is 31.4 percent and she believes that few employers are going to risk hiring unskilled help and paying them $15 an hour.
  • The best retail place for free Wi-Fi according to OpenSignal, is Starbucks with speeds of 9.01 Mbbs. Second among retailers was McDonald’s at over 4 Mbbs.
  • Corporate Stirrings: LYFE Kitchen announced the firm is moving their headquarters from Palo Alto, Calif. to Memphis, Tenn. Memphis-based Carlisle Corp., operator of 77 Wendy’s restaurants, recently made a large investment in LYFE and Carlisle’s president, Chance Carlisle, will be the CEO of LYFE. Zoe’s Kitchen, Inc. has announced that the company’s public stock offering will be 4.5 million shares at a price of $30.25 per share. Darden  hired an executive search firm to find the chain’s next CEO. The Shake Shack announced the company’s decision to have an initial public offering but no terms of the offering were released.
  • Cinnabon is testing a new higher end version in a mall in Houston. Called the Bon Bake Shop by Cinnabon the new concept will offer a wide variety of bite size rolls. Cinnabon’s famous classic roll will not be on the menu.
  • Domino’s is creating “pizza theater” in Phoenix and Scottsdale so customers can watch their pizza being made. A number of stores have already been redesigned with more to follow but there is no word if the new concept will be expanded to other markets.
  • Growth Chains: Freshii plans on having 140 stores by the end of this year and 250 by the end of 2015. Tim Horton’s has signed a franchise agreement for 25 restaurants in Middlesex County, and Staten Island, N.Y. Graeter’s Ice Cream, with over 40 units now open, plans on entering the Chicago and Nashville markets and is exploring other areas including Pittsburgh and New York. Schlotzky’s Deli will open 15 locations in Oklahoma City and 10 in Tulsa by the end of 2015. McAlister’s Deli has signed a franchise agreement for 5 restaurants in the Orlando market.
  • Comparable Store Sales Reports: Ark Restaurants (down 2.3 percent), Noodles & Company (system down 0.7 percent, company-owned down 0.6 percent, and franchised down 1.2 percent), NPC International (down 5.6 percent), Papa Murphy’s (domestic up 1.5 percent, company-owned up 5.7 percent, and franchised up 1.2 percent), Red Robin (up 1.2 percent), and Steak N Shake (up 1 percent).

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

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