The National Association’s Restaurant Performance Index showed a nice gain in December, rising 1.8 percent to 102.9. Any reading greater than 100 indicates growth. Driving the increase was a significant rise in the Current Situation, which jumped 3.4 percent from 99.6 in November to 102.9. The NRA pointed out this was the first time in 4 months the Current Situation Index exceeded 100. Moreover, the increase was caused by improvements right where most operators like to see them. Same-store sales were the strongest since mid-2015 while operators reported a net increase in customer traffic for the first time in 9 months.
To add more good news, operators’ confidence also improved with the Expectations Index rising 0.2 percent to a reading of 102.9. Fifty seven percent of operators believe their sales will be higher in 6 months over the same period a year earlier. And, 41 percent of operators believe the economy will be better in 6 months.
This optimism continues to impact operators’ willingness to spend money. Sixty two percent of those surveyed reported they made a capital expenditure for equipment, expansion and/or remodeling in the past 3 months. This is up from 50 percent in November. Further, 60 percent of operators plan on making a capital expenditure in the next 6 months.
All things considered, this is the most bullish report the NRA has put out in months. Now we have to wait and see if this is an aberition or the start of trend.
Economic News This Week
- Initial-jobless claims decreased 1,000 for a final reading of 230,000 for the week ending Jan. 27. The 4-week moving average fell 5,000 to a final level of 234,500. While Puerto Rico and the U.S. Virgin Islands are still not processing first time jobless claims in a normal manner, the data indicates the U.S. employment picture continues to look good.
- ADP reported private employment in the U.S. increased by 234,000 in January with medium and large businesses accounting for 176,000 of the new jobs. The leisure and hospitality sector added 46,000 jobs.
- The U.S. Bureau of Labor Statistics reported the U.S. economy added 200,000 new jobs in January, significantly exceeding most forecasts. Unemployment, which is determined in a separate survey, remained steady at 4.1 percent.
- U.S. car and light truck sales rose 1.2 percent in January on a seasonally adjusted annual rate of 17.18 million vehicles. Sales were affected by manufacturers incentives and heavy (but lower margin) fleet sales. But, sales of light trucks and SUVs were strong and these types of vehicles carry higher prices and larger profits. On the negative side, extreme weather cut dealer customer traffic.
- Labor productivity decreased 0.1 percent in the fourth quarter as output increased 3.2 percent and hours worked increased 3.3 percent. Unit labor cost increased 2.0 percent in the fourth quarter primarily due to a 1.8 percent increase in hourly compensation.
- The Chicago PMI retreated from a nine-year-high in January, falling 2.1 points to a final level of 65.7. (Any number exceeding 50 indicates growth.) New orders, production and order backlogs all fell but the employment indicator hit a six-year high.
- The Conference Board’s Consumer Confidence Index increased 2.3 percentage points in January and now stands at 125.4. The Present Situation Index edged down from 156.2 to 155.3 while the Expectations Index rose from 100.8 in December to 105.5 in January. A spokesman for the Conference Board stated that consumers remain confident that the solid pace of growth will continue in 2018.
- The University of Michigan Consumer Sentiment Survey’s final January report came in at 95.7 which was virtually identical to the 95.9 December reading. The Current Economic Conditions Index retreated to 110.5 last month from 111.3 in December but the Index of Consumer Expectations rose to 86.3 from 84.3 in December.
Foodservice News This Week
- Restaurants and bars added 31,100 employees in January according to the U.S. Bureau of Labor Statistics. That means restaurants accounted for almost 16 percent of the 196,000 new jobs created in the U.S. last month.
- Restaurant traffic was flat in 2017 according to the NPD Group. NPD pointed the number of restaurant visits would have been negative except for a 1.0 percent traffic increase to quick serve restaurants. Deals were a driver last year increasing 2.0 percent to 25 percent of all restaurant visits in 2017. This marks the third consecutive year the number of deals grew.
- McDonald’s reported strong sales for 2017 and the fourth quarter ending Dec. 31. System-wide sales increased 7.0 percent in 2017 and global comparable store sales rose 5.5 percent. U.S. comparable store sales increased 4.5 percent in the fourth quarter. In addition, McDonald’s $1 – $2 -$3 menu seems to be driving traffic. Researchers Dataessential and Sense 360 report share of U.S. traffic rose about 0.4 percent in the week ending Jan. 21 among fast-food and fast-casual restaurants. Big Mac’s traffic share is almost 18 percent. In other news, McDonald’s plans to invest $2.4 billion to accelerate its restaurant experience of the future plans in the U.S. Digital upgrades are part of this concept.
- Thirty-five percent of U.S. consumers will celebrate Valentine’s Day with an evening out and spend $3.7 billion doing it according to the National Retail Federation. Total Valentine’s Day spending will hit a record $19.6 billion, up from $1.2 billion last year.
- Corporate Stirrings: Casey’s General Stores submitted an initial bid for Kroger’s c-stores. Casey’s is one of several parties interested in buying Kroger’s nearly 800 convenience stores, which generate an estimated $2 billion a year in sales. Final bids are due this month. NRD Capital plans to purchase 43 Ruby Tuesday franchise locations. The restaurants are located in Alabama, North Carolina, South Carolina and Tennessee. Meritage Hospitality Group acquired 38 Wendy’s restaurants in Connecticut and Massachusetts. Sentinel Capital, a private equity firm, has sold the Huddle House chain, which Sentinel bought in 2012. The buyer wished to remain anonymous and the purchase price was not stated.
- Growth Chains: McDonald’s plans to open 1,000 new restaurants worldwide this year. McDougal Energy will open 20 Circle K stores in Ontario, Canada, in the next 5 years. Freddy’s Frozen Custard will open their first international location in Dubai with more stores planned for Saudi Arabia, Bahrain, Jordon, Kuwait, United Arab Emirates, Lebanon, Oman and Qatar. Shipley Do Nuts will open 25 stores in Oklahoma through 2021.
For details and the latest same store sales for other chains, please click here for Green Sheet.