Food Distributors’ Positive Quarterly Reports, Full-Serve Loses Favor, and Krystal Takes 75 to 24/7 Model

Distribution giants seem to be asking “What restaurant recession?” Consumers’ evaluation of full-serve restaurants declines. Chuck E. Cheese introduces a new restaurant design. Krystal moves to keep some units open 24 hours a day. These stories and a lot more This Week in Foodservice.

The three largest broadline U.S. foodservice distributors recently reported their quarterly financial results, which give a look into not only their performance but perhaps how well the foodservice industry as a whole is doing.

Sysco reported U.S. sales were $9.8 billion, an increase of 3.6 percent on a comparable 13-week basis for the quarter ending July 1 and broadline case volume grew 0.2 percent. Earnings per share rose to $0.57 from $0.38 per share in the corresponding quarter last year.

US Foods Holding Corporation reported sales of $6.2 billion for the 13-week period ending July 1, up from $5.8 billion in the corresponding quarter last year. US Foods stated that total case volume increased 3.6 percent while independent restaurant case volume rose 4.7 percent. Net income per share was $0.29 after a $0.07 per share loss in the corresponding quarter last year.

Performance Food Group Company reported sales of $4.4 billion, which is a 9.1 percent increase after adjusting for an extra week the previous year. Case volume increased 5.1 percent, again adjusting for the extra week. Earnings per common share increased to $0.39 from $0.29.

An examination of the three major distribution companies’ sales numbers would tend to indicate that foodservice operators are doing well. Yet, there continues to be talk about a restaurant recession, particularly among full-service restaurant chains.

Of course, it is entirely possible that sales are down and the heavy hitters cited above are driving sales by taking share of market from smaller distributors.

There is also a possibility that consumers are spending money at restaurants but have switched to independents and small chains.

Economic New This Week

  • Initial jobless claims fell 12,000 to 232,000 for the week ending August 12. The 4-week moving average fell by 500 to 240,500. This early indicator indicates the U.S. labor situation remains in good shape.
  • U.S. industrial production rose 0.2 percent in July following a 0.4 percent increase in June. The Federal Reserve reported that manufacturing output decreased by 0.1 percent due to a decline in motor vehicles and parts production. The index for mining rose 0.5 percent and the index for utilities rose 1.6 percent. Capacity Utilization for the industrial sector was unchanged in July at 76.7 percent, a rate that is 3.2 percentage points below its long run average (1972-2016).
  • Manufacturing activity in New York State shot up in August. The Empire State Manufacturing Survey Index from the NY Federal Reserve leaped by 15.4 percentage points to 25.2 for the month. (Any number over zero indicates increased activity.) The New Orders Index rose by 7.3 percentage points to 20.6. The Shipments Index grew by 1.9 percentage points to 12.4. The labor indexes were both positive with the Average Work Week Index rising 10.9 percentage points and the Employment Index up 2.3 percentage points. Only the Unfilled Orders Index was disappointing, staying flat at minus 4.7 percentage points.
  • The Federal Reserve Bank of Philadelphia’s Manufacturing Business Outlook Survey remained positive in August. The Index retreated slightly from 19.5 in July to 18.9 in August. (Any number above zero indicates increasing activity.) The New Orders Index jumped from 2.1 in July to 20.4. The Shipments Index rose from 12.2 in July to 29.4. The Unfilled Orders Index rose 7.2 to 14.5. The Number of Employees Index was down slightly from 10.9 to 10.1 while the Average Employee Workweek Index went from 3.8 to 18.8.
  • The Conference Board Leading Economic Indicators Index increased 0.3 percent in July after a 0.6 percent rise in June and a 0.3 percent increase in May. A spokesman for the Conference Board stated the index suggests that there will be “further improvements in economic activity in the second half of the year.”
  • Privately owned housing starts fell in July by 4.8 percent from June on a seasonally adjusted rate. Starts were 5.6 percent below July 2016. Single-family housing starts were down 0.5 percent from June. Building permits for privately owned houses were down 4.1 percent from June on a seasonally adjusted basis but up 4.1 percent from July 2016. The number of single family permits issued were flat from June.
  • The University of Michigan’s Index of Consumer Sentiment increased to 97.6 in the survey’s preliminary August report. In July, the index was 93.4. The Current Economic Conditions Index fell from 113.4 in July to 111.0 this month. The August Index of Consumer Expectations rose to 89, up from 80.5 in July. The chief economist for the university’s consumer surveys said that he expects the final reading will change given the Charlottesville aftermath as consumers may conclude that the Trump administration may have problems getting their economic changes accepted.

Foodservice News This Week

  • Full-service restaurants “falter” with customers. The American Customer Satisfaction Index reports that full-serve restaurants fell 3.7 percent to score 78 this year on its 100-point scale. This let fast food restaurants gain on full-service operations, with fast food reaching a score of 79. This is the first time in the history of the survey that fast feeders outranked full serve. The report speculated that rising menu prices are hurting restaurant traffic.
  • Chuck E. Cheese is remodeling several stores. The chain is striving for a sleeker, more adult look that includes warm wood, neutral tones, streamlined graphics and an open kitchen. So far, the revised design has appeared at 4 units in San Antonio, Texas, and 3 in Kansas City.
  • The Krystal Company now offers 24-hour service at 75 restaurants. The hamburger chain’s full lunch and dinner menu will be available. Prior to the change, most Krystal units closed at midnight. A spokesman said customers’ lifestyles initiated the expansion of restaurant hours.
  • McDonald’s is not the only company moving headquarters downtown. Companies as diverse as Boeing and ConAgra have also moved to the Chicago-proper area from the suburbs. The attraction is the availability of young workers who don’t like the suburbs. Chicago, unlike cities such as San Francisco, offers more affordable housing.
  • The U.S. Department of Justice has challenged New York City’s calorie labeling law, claiming that the 2010 Obama Care law gives the U.S. Food and Drug Administration authority over calorie labeling. New York City responded that the Trump administration has no intention of having food items’ nutritional data posted. The FDA said in May that the rule will not take effect until May 2018. New York has announced it will not enforce the rule until the court has made a decision on the justice department’s suit.
  • Corporate Stirrings: Wendy’s franchisee Cedar Enterprises has sold its 200-plus restaurants. The buyers were described as “several strong operators.” The price of the transaction was not disclosed. Up to 20 Joe’s Crab Shack Restaurants have closed as Landry’s, the company that won the bid for the Ignite Restaurant Group, awaited final approval from the bankruptcy court. Earlier this year, Joe’s had about 120 units. Landry’s owner speculated they will probably end up with about 60 locations. La Madeleine French Bakery & Cafes has sold 26 corporate stores in Texas and Louisiana to Sugar Land, Texas-based franchisee HZ LM Casual Foods. The franchisee also announced they have secured the rights to purchase an additional 57 new cafes. The sale was part of a previously announced plan to refranchise La Madeleine restaurants to multiunit operators of other brands. Price of the deal was not given. Hooter’s will close some locations and change waitresses’ uniforms to make the restaurant chain more family friendly. The company says its current operation does not appeal to Millennials and that has caused sales to stagnate. The changes will affect only U.S. units; locations in Asia will stay with the current strategy.
  • Growth Chains: Black Bear Diner has opened its 100th restaurant and plans to open 20 more in the next 14 months. R Taco will open a total of 5 locations in Minnesota, Nebraska and Texas. Bojangles’ will open several Florida restaurants. Florida cities on the docket include Daytona Beach, Gainsville, Jacksonville, Panama City, Pensacola, and Tallahassee. Domino’s has signed an agreement with their franchisee for a three-quarters stake in London’s 25 restaurants in order take advantage of growth opportunities.
  • Comparable Store Sales Reports: Famous Dave’s (Company owned down 2.2 percent and franchised down 3.2 percent), Kona Grill down 5.3 percent, One Hospitality Group (Owned STK up 1.2 percent and Owned and Managed STK up 1.7 percent), Ruby Tuesday down 1.6 percent, Steak n’ Shake down 3.1 percent, Texas Roadhouse (Company owned up 4.0 percent and franchised up 3.6 percent), and Zoe’s Kitchen down 3.8 percent.

For details and same-store sales of other restaurant chains, Click Here for the Green Sheet.

 

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