How important are restaurants to franchising? And, how important is franchising to the restaurant industry? The International Franchise Association Franchise Education and Research Foundation hired IHS Markit to survey franchised operations and the results were reported in the Wall Street Journal.
Quick-service restaurants account for 26 percent of all franchised locations, employ 46 percent of the workers at franchised businesses and generate 34 percent of the revenue from the franchise business.
And, table/full-serve restaurants account for 4 percent of franchised locations, employ 13 percent of the staff at franchised locations and generate 10 percent of the revenue from franchised businesses.
Doing some first grade math tells us restaurants make up 30 percent of franchised locations, employ 59 percent of the workers at franchised businesses and take in 44 percent of all the money spent at franchised operations.
How important are restaurants to franchising and vice a versa? Very.
Economic News This Week
- Initial-jobless claims climbed 2,000 to a level of 211,000 for the week ending April 28. The 4-week moving average fell 7,750 to a level of 221,500. Both figures remain around 40-year lows.
- ADP reports the private sector added 204,000 jobs in April. The payroll processing company said businesses of all sizes hired heavily and the leisure and hospitality industry increased employment by 36,000.
- The U.S. Department of Labor estimated the country added 164,000 jobs in April. The report said that government employment fell by 4,000 so the private sector rose by 168,000. While the total number of jobs added was an increase over the103,000 jobs added in March, the number of new hires was less than most estimates. Some labor experts believe a lack of qualified applicants continues to limit hiring. The April unemployment rate fell to 3.9 percent after a reading of 4.1 percent for the last 6 months. It has been 17 years since unemployment was 3.9 percent.
- Personal income increased 0.3 percent in March. The Bureau of Economic Analysis also reported that personal consumption expenditures rose 0.4 percent after declining in January and February.
- The Institute for Supply Management’s Production Manufacturing Index fell 2.0 points to 57.3 in April. (Any reading that exceeds 50 shows increasing activity.) The New Order Index totaled 61.2, a decline of 0.7. The Production Index totaled 57.2, a decline of 3.8. The Employment Index registered 54.2, a decline of 3.1 points. The Backlog of orders Index rose 2.2 percentage points to a reading of 62.0. Of the 18 manufacturing industries studied by the Institute, 17 reported growth in April.
- The Institute for Supply Management’s Non-Manufacturing Index showed growth for the 99th consecutive month. The index fell by 2.0 percentage points to a level of 56.8 in April. (Any reading greater than 50 shows growth.) The New Orders Index totaled 60, an increase of 0.5. The Order Backlog Index was 52, a decline of 4.5 percentage points. The Employment Index was 53.6, a dip of 3.0 percentage points. All 15 non-manufacturing industries surveyed, including Accommodations & Foodservice, reported growing last month.
- April car and light truck sales fell 4.8 percent due to a decline in car sales and fleet sales. But, on an annual basis, sales were 17.15 million units, the eighth consecutive month annual sales exceeded 17 million. Manufacturers tend to make higher profits on SUVs and pickup trucks. Both General Motors and Ford have announced plans to drop some sedan models.
- Total construction spending fell 2.1 percent in March from February but increased 3.6 percent compared to March 2017. Private construction spending declined 2.1 percent in March from February. Residential constructing spending declined 3.5 percent from February.
Foodservice News This Week
- Foodservice operators resumed their hiring ways in April, after the Department of Labor reported foodservice employment was flat in March. In April the industry added 14,800 new jobs which is 9.0 percent of all the jobs added for the month.
- Which chain is winning the value war? Maybe all of them according to The NPD Group. The firm’s study shows a 10 percent increase in traffic and 13 percent increase in sales related to value menu items in the first quarter of this year. The NPD Group data shows value menus remain successful in driving traffic and retaining current customers. Equally impressive, 72 percent of value menu customers also ordered something off the regular priced menu.
- Eliminating tipping can cost restaurants. A professor at Cornell contends dropping tips can make a restaurant less appealing to customers because having the ability to add a tip increases customer satisfaction. Further, customers perceive service is worse if there is no tipping. The professor contends this will show up in lower ratings from Yelp and other review sources. But, well-known restaurant operator Danny Meyer says his ratings have stayed the same or better since his 11 restaurants eliminated tipping.
- P.F. Chang’s succeeds in – China. The chain reports that Chinese customers “…love the concept that it’s an American bistro, serving some of their American dishes for an American-style palette.” The company plans to add up to 16 restaurants outside the U.S. this year.
- McDonald’s will offer electric vehicle recharging stations at 41 San Francisco-area locations. Drivers recharging their vehicles do not have to make a purchase at McDonald’s.
- Domino’s franchisees in South Carolina are looking to add to their staffs. Forty-one franchisees plan to hire more than 800 new employees in the coming months.
- Corporate Stirrings: Kona Grill, in a move to restructure the company’s debt, has partnered with a Chinese Hotelier to raise $5.6 million. A group of U.S. Tim Hortons franchisees is suing parent company Restaurants Brands International, challenging a clause in the franchise contract stating that all disputes must be settled in federal court in Miami. The franchisees said they then intend to file suit claiming the parent company misused the franchisee advertising fund.
- Growth Chains: Checkers and Rally plan to open 150 60-ton modular units which come complete with installed equipment as well as smallwares and utensils. Del Taco will open seven restaurants in Atlanta. P.F. Chang’s will open 6 to 8 locations in the U.S. and 14 to 16 restaurants globally before the end of 2018. Newk’s Eatery will open 11 locations in West Texas. Jamba Juice will open 15 locations in Houston. Wetzel’s Pretzel’s has identified more than 60 target locations in Texas and is looking for qualified franchisees. Tropical Smoothie Café plans to open eight locations in Indianapolis.
- Comparable Store Sales Reports: Del Taco up 3.7 percent, Denny’s (System up 1.5 percent, Company Owned up 3.2 percent & Franchised up 1.2 percent), El Pollo Loco (System down 1.1 percent, Company Owned down 2.0 percent & Franchised down 0.4 percent), Ruth’s Chris Steakhouse down 1.1 percent, Shake Shack up 1.7 percent, YUM! Brands (KFC Even, Pizza Hut up 4.0 percent and Taco Bell up 1.0 percent) and YUM China (KFC up 5.0 percent and Pizza Hut down 5.0 percent.)
For details and same-store sales of other chains, please click here for the Green Sheet.