Restaurant performance held steady in May, per the National Restaurant Association. Operators added 16,000 new employees in June. Fast-casual restaurant growth slows. McDonald’s focuses on breakfast. These stories and a whole lot more This Week in Foodservice.
The National Restaurant Association’s Restaurant Performance Index declined “modestly” in May, falling to 101.2 from 101.3 in April. Any reading greater than 100 indicates increasing activity.
The Current Situation Index was 100.6 in May, up .1 from April. In reality this index was a mixed bag in May with same-store sales trending upward but traffic trending downward. The other major component of the RPI, the Expectations Index declined by 0.4 from April. Some consumer surveys have similar results. Sort-term confidence is good but consumers are nervous about the future primarily due to threats of tariff increases.
Despite some uncertainty, 63 percent of operators reported investing in equipment, expansion and/or remodeling in the last 3 months. This was down from 67 percent in April but the NRA noted this was the third consecutive month where more than 60 percent of operators reported making capital expenditures.
And, 64 percent of operators plan to make a capital expenditure in the next 6 months, which is an increase from 59 percent who reported similarly last month.
Economic News This Week
- Gross Domestic Product increased 2.0 percent in the first quarter, per the Bureau of Economic Analysis’ third estimate. This is down .2 percent from the BEA’s second estimate and .9 percent less than the growth rate the GDP
- Personal Income increased 0.4 percent in May, per the U.S. Commerce Department’s Bureau of Economic Analysis. Personal Consumption Expenditures increased 0.2 percent in May.
- Initial-jobless claims totaled 231,000, an increase of 3,000 for the week ending June 30. The 4-week moving average for new claims totaled 224,500, an increase of 2,250 to 224,500. New claims remain at a very low level.
- The private sector added 177,000 jobs in July, according to ADP’s Employment Report. The payroll processing company also reported small companies (1-49 employees) added 29,000 jobs, midsized companies (50 to 499 employees) added 80,000 jobs, and large firms (500 or more employees) added 69,000 jobs. ADP also projected the leisure and hospitality sector added 33,000 jobs.
- The Bureau of Labor Statistics painted a strong labor picture in June with the economy adding 213,000 new jobs. The economy has added an average of 250,000 jobs per month in 2018. Even what appeared to be bad news was actually a good sign. The unemployment rate rose to 4.0 percent in June from an 18-year low of 3.8 percent in May. This was the result of 600,000 workers joining the labor force.
- Sales of cars and light trucks stayed in the fast lane in June. Thru the first 6 months of the year, sales are up 1.9 percent despite rising interest rates for automotive loans. Auto executives have expressed concern about tariffs that could increase retail prices by thousands.
- Sales of new single family homes in May were at a seasonally adjusted annual rate of 689,000. This represents a 6.7 percent increase compared to the April sales figure and 14.1 percent more than May 2017.
- Private construction spending increased 0.3 percent in May compared to the previous month. May residential construction spending was .8 percent greater than April.
- New orders for manufactured durable goods decreased 0.6 percent in May according to the U.S. Census Bureau’s advance report. Excluding transportation, new orders declined 0.3 percent. Excluding defense, new orders decreased 1.5 percent.
- The Institute for Supply Management’s Manufacturing Index increased 1.5 percent in June compared to May and now stands at 60.2. (Any number exceeding 50 indicates increased activity.) The New Orders Index was virtually unchanged at 63.5 in June vs. 63.7 in May. The Production Index changed little as well, rising 0.8 point for a final June level of 62.3. The Order Backlog Index fell 3.4 points to a final level of 60.1. Of the 18 production industries surveyed by the ISM 1 was flat while the other 17 reported increased business.
- The Institute for Supply Management’s Non-Manufacturing Index increased 0.5 percent in June compared to May marking the 101st consecutive month that non-manufacturing business activity grew. The Index registered 59.1 percent. (Any reading greater than 50 indicates growth.) The Business Activity/Production Index hit 63.9, an increase of 2.6 points. The New Orders Index totaled 63.2, an increase of 2.7. The Order Backlog Index was 56.5, a decline of 4.0 points. The Employment Index totaled 53.6, a .5 dip. Of the 18 non-manufacturing industries surveyed, 17 reported growth in June, including Accommodation & Foodservice.
- The Chicago Business Barometer rose to 64.1 in June, a 1.4 point increase from May and up 0.8 percent for the year. The number of new orders increased but production was down. The order backlog is 11.4 percent greater than in June 2017.
- The Conference Board’s Consumer Confidence Index totaled 126.4 in June, down from 128.8 in May. The Present Situation Index was virtually unchanged but the Expectations Index declined to 103.2 in June from 107.2 in May.
- The University of Michigan Index of Consumer Sentiment changed little in the final June reading. The Index hit 98.2 following a reading of 98.0 in May. The Current Economic Conditions Index rose to 116.5 from 111.8 in May while the Index of Consumer Expectations fell to 86.3 from 89.1 in May. A university spokesman said consumers were concerned over rising tariffs.
Foodservice News This Week
- Foodservice operators added 16,400 new jobs in May. This accounts for 8.0 percent of all the job growth in the private sector for the month.
- Fast-casual restaurants represent the only foodservice sector to increase traffic in the past five years according to The NPD Group. But NPD also reports visits at fast-casual restaurants slowed in the last two quarters. Compared to growing 7 percent in the third quarter of 2017, fast-casual visits grew 4.0 percent in the quarters ending in December 2017 and March 2018. Fast-casual unit growth experienced a compound annual growth rate of 7.0 percent over the last 5 years with locations increasing from 19,231 in 2013 to 25,118 in 2017.
- McDonald’s will emphasize breakfast. McDonald’s admitted the company took its eye off this daypart when the restaurant chain introduced day-long breakfast three years ago. In an attempt to recover lost market share, McD’s now offers breakfast catering at 195 units in Florida and has tested muffin tops and coffeecake in Baltimore.
- Nearly 400 Corner Store locations in Texas will be rebranded as Circle K stores according to Alimentation Couche-Tard, which purchased the brand a year ago. This is part of worldwide effort to make Circle K a global brand.
- Corporate Stirrings: Polar Star Capital Partners, a new private equity fund, announced the purchase of a controlling interest in Meridian Restaurants Unlimited. Meridian owns and operates 114 Burger King units and recently announced their intent to buy 10 Chili’s and 2 El Pollo Loco operations. Papa John’s International Inc. announced the sale of all their 34 locations in Beijing and Tianjin to the Asian private equity firm of Advantage Partners. CKE Restaurants, parent company of Carl’s Jr. and Hardee’s, announced they will expand their Franklin, Tenn., headquarters by 47,000 square feet and will hire office support, IT, finance, risk management and international operations personnel totaling 145 new jobs. Centerbridge Partners, a private equity company that acquired P.F. Chang’s in 2012, has announced the potential sale of the chain. The company said they are doing so because of P.F. Chang’s positive performance and the receipt of multiple unsolicited inquiries.
- Growth Chains: The Coffee Bean & Tea Leaf plans to triple its number of stores in the U.S. in the next decade to 1,000. McDonald’s is going to expand its McCafe stores into Canada starting with two locations in Toronto. Taco Bell has signed master franchise agreements that will expand the number of locations in Brazil to 200 by 2017 and will add units in Japan to more than 200 in the next decade. Dunkin’ Donuts will open two more locations in Houston.
- Comparable Store Sales Reports: Sonic Drive Ins (System down 0.2 percent, company owned up 0.2 percent and franchised down 0.2 percent.)
For details and same-store sales of other chains, please click here for the Green Sheet.