There must be hundreds of interviews with successful foodservice operators who admit if they knew how tough the business was, they would have never got into it. A number of articles in The Wall Street Journal underline exactly how tough it is.
Take something simple like giving customers a place to sit. Some restaurants are replacing regular chairs with barstools to fit in more people. But some operators are finding that people on bar stools order one plate at a time, which brings down check averages. Just as bad, bar stool patrons seem to linger, cutting down on table turns.
Delivery represents a major growth area for restaurants. In the past it was about as low tech as you could get. Hire some high school kid with a beater car. But now it seems the future will be driverless cars. Talk about high tech. And, then there the drones …
Also, the tipping controversy continues to linger. For decades the system worked, maybe not real well, but some servers liked tips. Now, legislators want to force restaurants to pay tipped employees a salary. Some operators have done away with tipping, then found that neither customers nor servers liked the non-tipping policy.
Finally, can anyone figure out how a restaurant can be a roaring success initially then be out of business a few years later? Are consumers fickle? Is the business like the fashion industry that must come up with something new all the time? How do restaurants constantly reinvent themselves without turning off many existing customers?
The only thing you can say for sure is … it’s complicated.
Economic News This Weeks
- Initial-jobless claims hit 218,000, an increase of 1,000 in the week-ending July 28. The 4-week moving average totaled 214,500, a dip of 3,500 claims.
- Private employers added 219,000 new workers in July, per ADP. The payroll-processing company said mid-size firms (50 – 499 employees) hired 119,000 employees while the remaining 100,000 new jobs were split about evenly between small and large firms.
- Non-farm payroll employment increased by 157,000 in July, per the U.S. Bureau of Labor Statistics. Private employment rose 170,000 but government employment fell by 13,000. In the first seven months of this year employment has averaged an increase of 215,000. Offsetting the July number was the bureau’s revision of May and June’s report of an upward revision of a total of 59,000 new jobs. Unemployment, which is determined in a separate study, edged down from 4.0 percent in June to 3.9 percent.
- Personal income increased 0.45 in June according to the U.S. Commerce Department. And, personal consumption expenditures rose 0.4 percent for the month.
- July car and light truck sales fell by 3.7 percent. There was one fewer sales day last month but some observers put the blame on rising interest rates and higher gasoline prices. Some forecasters have been predicting slower automobile sales since last year and it may have finally occurred.
- New orders for manufactured goods increased 0.7 percent in June. Shipments rose 1.0 percent while unfilled orders rose 0.4 percent. New orders for manufactured durable goods increased 0.8 percent.
- The Institute for Supply Management’s July Manufacturing Index reports slowing growth with the index dropping 2.1 percentage points to final reading of 58.1 percent in July. (Any number exceeding 50 indicates growth.) This the 111th consecutive month of manufacturing activity increasing. The New Orders Index fell 3.3 percentage points to a final level of 60.2 percent. The Production Index dropped 3.3 percentage points to a final reading of 58.5 percent. The Order Backlog Index declined 5.4 percentage points to a final level of 54.7 percent. The Employment Index rose 0.5 percentage points for a final reading of 56.5 percent. Of the 18 manufacturing industries studied by the Institute, only the primary metals group reported negative results perhaps due to the tariff wars.
- The Institute for Supply Management’s Non-Manufacturing Index retreated in July to 55.7, a dip of 3.4 points. (Any level greater than 50 indicates growing activity.) This is the 102nd consecutive month the index has grown. Business activity hot 56.5, down 7.4 points from June. The New Orders Index hit 57.0 in July, down 6.2 points from June. The Order Backlog Index hit 51.5, down 5.0 points. Of the 18 non-manufacturing industries surveyed by the Institute, 16, including Accommodations & Foodservices, reported growth.
- The Chicago Business Barometer Rose To 65.5 In July, a 1.4 points increase from June. The barometer is now up 10.1 percent for the year. (Any reading above 50 indicates increased activity.) Production and New Orders hit a 6 month high with increases of 8.0 percent and 10.6 percent respectively. Order Backlogs hit 9 a month high while the Employment Indicator hit a 4 month high.
- The Pending Home Sales Index increased 0.9 percent in June according to the index’s sponsor, the National Association of Realtors. Despite the June increase, contract signings are still down 2.5 percent on an annual basis.
- Private construction spending fell 0.4 percent in June from May. Residential construction spending declined 0.5 percent from May.
- The Conference Board’s Consumer Confidence Index increased “marginally” in July. The Index stands at 127.4 (1985 = 100), up from 127.1 in June. The Present Situation Index rose to 165.9 from 161.7 while the Expectations Index slipped to 101.7 to 104.0 in June.
Foodservice News This Week
- Foodservice operations added 26,200 new employees in July. This is 15 percent of the total 170,000 jobs added in the private sector last month.
- Schlotzky’s Deli will change to a fast-casual format and its name to “Schlotzsky’s Austin Eatery.” The chain will now offer beer and wine and expand its menu to include tacos, flat breads and sliders. Austin, Texas, is the company’s home town. The company hopes this move will attract more Millennials.
- IHOP’s president proclaimed the chain’s burger introduction a success. The fake name change promotion was responsible for a “significant lift” in both traffic and sales at lunch and dinner.
- FriendShip Food Stores opened a new concept called “FriendShip Kitchen” in Elyria, Ohio. The 5,500-square-foot store offers a variety of prepared foods including hand-breaded chicken, pizza, hot breakfast sandwiches as well as huge number of other items prepared on site by the company’s chefs. FriendShip foods is the retail division of Beck suppliers Inc.
- Corporate Stirrings: Focus Brands Inc. will buy Jamba Inc. for $13 a share which is a transactional value of roughly $200 million. Four Corners Property Trust, a real estate investment trust, announced the signing of an agreement to acquire up to 48 corporately owned Chili’s restaurants.
- Growth Chains: The Milkshake Factory plans to open its third location in Columbus, Ohio. C-store chain Royal Farms opened its first store in New Jersey earlier this year and now has four open and six more in the planning stage or under contract. Krispy Kreme plans to open 10 stores in Myanmar. Fazoli’s plans to open five restaurants before the end of the year. Dickey’s Barbecue will open three locations in Los Angeles.
- Comparable Store Sales Reports:Applebee’s up 5.7 percent, Bojangles down 0.2 percent, Burger King up 1.8 percent, Cheesecake Factory up 1.4 percent, Denny’s (System down 0.7 percent, Company Owned down 0.1 percent & Franchised down 0.8 percent), El Pollo Loco (System down 0.9 percent, Company Owned down 1.6 percent & Franchised down 0.3 percent), Habit Burger up 1.2 percent, IHOP up 0.7 percent, Papa Murphy’s (Domestic down 2.4 percent, Company Owned down 2.4 percent & Franchised down 2.2 percent), Popeyes Louisiana Kitchen up 1.8 percent, Shake Shack up 1.1 percent, Tim Horton’s Flat, Wingstop up 4.3 percent, YUM Brands (KFC down 1.0 percent, Pizza Hut up 2.0 percent & Taco bell up 1.0 percent) and YUM China (KFC Flat & Pizza Hut down 4.0 percent)
For details and same-store sales of other chains, please click here for the Green Sheet.