The National Restaurant Association’s Restaurant Performance Index hit 101.1 in September, down 0.9 percent from August. The Primary reason for the fall was a reduction in same-store sales and customer traffic. This brought the Current Situation Index down a steep 1.7 percent to a final level of 100.6. Since a reading of 100 indicates break even, the Current Situation Index is barely in expansion mode.

The Expectation Index slid as well, but just by 0.1 percent to a final level of 101.6. Operators are less optimistic about both their own future sales as well as the direction of the overall economy.

The silver lining in the report is that operators seem quite willing to keep investing in their businesses. Respondents to the survey said that 66 percent made an investment in equipment, expansion and or remodeling in the last three months. The National Restaurant Association noted that at least 6 in 10 operators made a capital expenditure in the last 7 consecutive months.

Looking ahead, 65 percent of the foodservice operators surveyed said they intend to make a capital expenditure in the next 6 months.

In summary, September was far from a great month but operators remain willing to spend.

Economic News This Week

  • Initial-jobless claims decreased 2,000 to a final level of 214,000 for the week ending Oct. 27. The 4-week moving average increased 1,750 to a final level of 213,750.
  • The U.S. Bureau of Labor Statistics reported strong hiring in October with the economy adding 250,000 new jobs. And the unemployment rate stayed down at 3.7 percent, the same low level as in September. The third piece of good news in the report dealt with wages. Economists have been concerned for months that while employment rose, wages were not rising. The October study found wages were up 3.1 percent over October 2017. This is the biggest year-over-year wage increase since 2009.
  • The Bureau of Economic Analysis reported a 0.2 percent increase in personal income for September. The report also said that personal consumption expenditures increased 0.4 percent for the month.
  • Business sector labor productivity increased 2.2 percent in the third quarter this year. Output increased 4.1 percent while hours worked increased 1.8 percent. Unit labor cost increased 1.2 percent in the third quarter with a 3.5 percent increase in hourly compensation and a 2.2 percent increase in labor productivity.
  • The Census Bureau’s full report for September showed a 0.7 percent increase in new orders for manufactured durable goods. Demand for transportation equipment drove the growth.
  • The Chicago Business Barometer declined in October, with the index falling to 58.4 from 60.4 in September. Any reading greater than 50 indicates increasing activity so the October result still indicates a healthy rate of growth. New orders and unfilled orders declined while employment and production both grew for the month.
  • September private construction spending increased 0.3 percent compared to August. Residential construction spending increased 0.6 percent in September from August.
  • U.S. car and light truck sales edged up 0.4 percent to an annualized rate 17.59 million vehicles in October. This is the highest monthly rate of the year and it exceeded various industry forecasts. One auto analyst pointed out the October industry sales performance positive was despite higher interest rates, import tariffs, a weak housing market, a volatile stock market and higher gas prices.
  • The Conference Board’s Consumer Confidence Index increased again in October, rising to 137.9 from 135.3 in September. The Index remains near levels last seen in the fall of 2000 when it hit 142.5. The Present Situation Index improved to 172.8 in October from 169.4 in September. The Expectations Index increased to 114.6 from the September reading of 112.5.

Foodservice News This Week

  • After the September BLS Employment Report showed a highly unusual decline of 18,200 foodservice jobs, the October report showed a major jump of 33,500 new jobs in the foodservice industry. Thus, foodservice accounted for more than 13 percent of all the new private sector jobs last month.
  • Papa John’s is in play – big time. Reports have Papa John’s International being targeted by a group of private equity firms including Bain Capital, CVC Capital Partners, KKR & Company, and major restaurant chain investor Roark Capital. And activist fund Trian is considering a major investment in Papa John’s if the chain is not sold. Papa John’s board has formed a special committee to explore “strategic alternatives” but said this does not guarantee the company will be sold.
  • Denny’s new business model would mean franchisees would operate 95 percent to 97 percent of the chain’s units. Denny’s plans to refranchise 90 to 125 company-owned units in the next year and a half. Investors responded to the refranchising program by driving up Denny’s stock by 22 percent.
  • Research firm says Pizza Hut is missing a prime demographic. GlobalData Retail says younger customers, especially students, continue to pass by Pizza Hut for Domino’s and Papa John’s. Key drivers in pizza sales include brand perception, physical location and price. It appears that Pizza Hut comes up short on all three, per GlobalData. Some see Pizza Hut’s dine-in service as a drag on the company’s operations, overshadowing the chain’s delivery and takeout business.
  • Corporate Stirrings: The Cheesecake Factory is considering buying the North Italia chain, which is part of Sam Fox’s operation. The Cheesecake Factory is a minority investor in North Italia.
  • Growth Chains: Blaze Fast Fire’d Pizza will open locations in New Jersey and Alabama.
  • Comparable Store Sales Reports: Applebee’s up 7.7 percent, Bloomin’ Brands (combined brands up 2.9 percent, Outback Steakhouse up 4.6 percent, Carrabba’s down 0.6 percent, Bonefish Grill up 1.8 percent and Flemming’s up 0.5 percent), BJ’s Restaurants up 6.9 percent, Brinker International (Chili’s company-owned up 2.0 percent, Chili’s U.S. franchised locations up 1.5 percent and Maggiano’s Flat), The Cheesecake Company up 1.5 percent, Denny’s (Systemwide U.S. locations up 1.0 percent, company owned units up 2.1 percent and franchised units 0.8 percent), Habit Burger up 3.6 percent, IHOP up 1.2 percent, Shake Shack down 0.7 percent, Steak N Shake down 6.9 percent, Texas Roadhouse (company-owned units up 5.5 percent and franchised units up 4.2 percent), YUM! Brands (KFC’s U.S. locations were even, Pizza Hut’s U.S. units were up 2.0 percent and Taco Bell was up 5 percent systemwide) and a YUM! China (KFC up 1.0 percent and Pizza Hut down 5.0 percent).

For details and same store sales of other chains, please click here for the Green Sheet.