Merrill Lynch surveys consumers about eating out. Uber will test food delivery via drone. Chipotle racks up a triple digit jump in delivery. Food at home prices rose more in April than the price for food away from home prices. Sysco, US Foods and the Performance Food Group saw some sales growth and enjoyed higher profits in the first quarter of this year. These stories and a whole lot more This Week in Foodservice.
Age, gender, income, marital status and household size drive food-away-from-home purchases, according to research from Merrill Lynch. Factors of less importance include home ownership and urban vs. non-urban residence. At the moment, food-away-from-home purchases skew with age. Younger consumers have a stronger preference for eating out, delivery and carryout. The restaurant industry faces some challenges in the form of an aging U.S. population and declining birth rates. These factors impact the demand for restaurant usage.
The falling marriage rate could also support restaurant sales as unmarried individuals and persons in smaller households tend to eat out more frequently. Males also tend to avoid cooking and choose to eat out and have food delivered more often than females.
Taking a closer look at how income impacts restaurant usage, among individuals with incomes greater than $125,000, 49 percent prefer to eat out. In contrast, that rate dips to 36 percent among those consumers with annual incomes of less than $125,000.
In summary, Merrill Lynch concludes these trends represent a mixed bag for restaurants.
Economic News This Week
- The Bureau of Labor Statistics’ JOLT Study reported the number of job openings rose to 6.6 million in March. This represents the highest level since the research started in December 2000. At 5.4 million, the number of hires changed little from February. The same applies to the number of separations (layoffs, discharges and quits), which totaled 1.6 million. The number of people who quit edged up slightly. The number of quits is closely watched as it indicates confidence on the part of employees who accepted a new position or feel confident to find new employment quickly.
- Initial-jobless claims totaled 211,000 for the week ending May 6. This was the same as the previous week. The 4-week moving average totaled 216,000, a decline of 5,500. This is the lowest this average has been since Dec. 20, 1969.
- The April Producer Price Index for Final Demand rose 0.1 percent. The Index for Final Demand Goods was unchanged from March while the Index for Final Demand Services rose 0.1 percent. The “Core Index,” that is without food and energy prices, was up 0.3 percent. The change in final demand from 12 months ago is +2.6 percent.
- The Consumer Price Index for All Items increased 0.2 percent in April and is now up 2.5 percent in the last 12 months. The index for all items less food and energy rose 0.1 percent in April and is up 2.1 percent in the last 12 months. (For food prices in April, please see the Foodservice News This Week section below.)
- The Federal Reserve reported consumer borrowing increased by 5.25 percent in March. Revolving credit – mostly credit card borrowing – increased 2.4 percent while non-revolving credit – auto loans, student loans, etc. – increased 6.2 percent.
- The preliminary May University of Michigan Consumer Sentiment Index remained steady at 98.8, the same as in April. The Index of Current Economic Conditions edged down from 114.9 in April to 113.3 in May. The Index of Consumer Expectations crept up to 89.5 from 88.4 in April. A university spokesperson described the changes as insignificant.
Foodservice News This Week
- Uber will test food delivery by drone in the San Diego market. The U.S. Department of Transportation chose Uber along with a number of companies and organizations to conduct a wide-ranging drone delivery test program.
- Chipotle Mexican Grill’s delivery business explodes. The fast-casual Mexican chain kicked off a delivery program with DoorDash on April 30 and delivery sales rose 667 percent. Chipotle’s new CEO pointed out that despite the sky-rocketing sales increase, many customers remain unaware the chain now offers delivery service. Recently, The NPD Group described delivery as a must have for restaurants to succeed and Chipotle’s experience seems to support this.
- The Consumer Price Index for Food increased 0.3 percent in April and is up 1.4 percent in the last 12 months. The price index for food at home rose 0.3 percent for the month while the index for food away from home rose 0.2 percent. This marks one of the few occasions in the last few years when food at home prices grew faster than the price for food away from home. In the past 12 months food at home prices increased 0.5 percent and food away from home increased 2.5 percent.
- Sysco Corporation reported sales increased 5.1 percent for the company’s quarter ending March 31. Sales volume totaled $9.7 billion and local case volume within Sysco’s U.S. broadline operations rose 2.6 percent. Net earnings were $330 million, an increase of 38 percent.
- US Foods’ quarterly report for March 31 had the distributor’s sales at $5.8 billion, an increase of 0.6 percent. Total case volume decreased 2.3 percent while independent restaurant case volume rose 4.3 percent. Net income for the quarter was $67 million, up $40 million.
- Performance Food Group’s sales increased 2.7 percent for a total of $4.3 billion for the quarter ending March 31. Total case volume increased 0.8 percent. Net income rose 62.0 percent to $33.7 million.
- The fast-casual sector bounced back in 2017. Technomic’s study of the Top 250 Fast Casual Chains shows total sales among these concepts grew 9 percent in 2017. Unit growth among the top 250 fast-casual concepts was 6.1 percent, down from 9.8 percent in 2015. CoreLife Eatery and Wahlburgers had triple digit unit growth. The pizza segment was the smallest by sales but enjoyed 27.3 percent sales growth year over year.
- Fewer minors means a major problem for fast-food restaurants. A quarter of a century ago there were 56 teenagers in the labor force for every fast-food location. Today there are less than half as many. And not only are there are far more limited-service restaurants now but there are fewer teenagers looking for jobs. In 2000 about 45 percent of those between 16 and 19 years old had a job. Today only 30 percent of people in that age range had a job. Fast-food operators continue to become more creative in hiring, offering more incentives and find they have to pay more.
- Corporate Stirrings:Dine Brands, parent company of Applebee’s and IHOP, Is looking to acquire another restaurant chain. The CEO of Dine said they want to buy a fast-casual operation in order to have be in a faster growing segment.
- Growth Chains: Magnolia Bakery will expand by as many as 200 franchised locations in the next 5 years. Papa John’s opened its 50th restaurant in Spain and plans to open locations in Paris.
- Comparable Store Sales Reports: Bad Daddy Hamburgers up 0.2 percent, Carrols Restaurant Group up 6.2 percent, CEC Entertainment down 5.1 percent, Good Times Burgers up 7.1 percent, J. Alexanders Holdings (J. Alexanders up 0.3 percent and Stony River Steakhouse up 6.2 percent), Jamba Juice (System up 2.3 percent, company owned up 1.6 percent and franchised up 2.4 percent), Kona Grill down 8.3 percent, Noodles & Company (system down 0.2 percent, company owned down 0.3 percent and franchised dup 0.9 percent), Papa Murphy’s (domestic down 3.9 percent, company owned down 2.7 percent and franchised down 4.0 percent) and Potbelly Sandwich Company down 3.6 percent.
For details and same-store sales of other chains, please click here for the Green Sheet.