Restaurant operators maintained a positive outlook in May, the only catch is that it was not quite as positive as recent months. And that set of mixed results is indicative of the overall U.S. economic climate, foodservice included.
The May Restaurant Performance Index fell by 0.2 percent but stayed in positive territory, posting a score of 101.4, marking the seventh straight month of industry expansion. Both of the RPI's major components — the Current Situation Index and the Expectations Index — fell by 0.2 percent. The number of operators reporting an increase in same store sales rose in May over April while fewer operators said that customer traffic was up last month vs. April.
On a positive note, 46 percent of those surveyed said they had made a capital expenditure for expansion, remodeling and/or major equipment purchase in the last 3 months, which was up from 44 percent in April. And, 55 percent of the operators in the study plan to make a capital expenditure in the next 6 months, which is up from 52 percent in April.
Economic News This Week
- Following up on news of last week, both the New York Times and the Wall Street Journal ran articles that somewhat cautiously indicated that the housing market was beginning to heal. The National Association of Realtors said that pending home sales rose 5.9 percent in May, which is a two-year high and 13 percent more than May 2011. Meanwhile, Equifax released news that severely late mortgage payments (90 days or more) are down 45 percent in May from its peak in January 2010. Also, construction spending rose stronger than expected, up 0.9 percent in May. And it is reported that Quicken Loans and other mortgage companies are hiring additional staff.
- While the housing market seems to be improving, the manufacturing segment, which has been a bright spot in the economy the last couple of years, may be faltering. The Institute for Supply Management's Manufacturing Index fell to less than 50, indicating that manufacturing was contracting. The index for June was 49.7, which marks the first time the index has shown negative growth since July 2009. The Wall Street Journal says the primary cause for the slowdown is the faltering European economy. On the other hand durable goods orders rose a stronger than expected 1.1 percent in May after two months of decline. And the Chicago area Production Manufacturing Index ticked up slightly in June to 52.9 vs. 52.7 in May. The latest conflicting data comes from the government, stating that factory orders in May rose 0.7 percent, which was unexpectedly high.
- First time jobless claims continue to run higher than economists would like to see, hitting 386,000 for the week ending June 22. This is the fifth week in a row that claims exceeded 380,000. Initial jobless claims for the previous week were revised up to 392,000.
- Gross Domestic Product for the first quarter remained at a mediocre +1.9 percent according to the government's third estimate.
- The Reuters/U. of Michigan Consumer Sentiment Index fells to 73.2 in June from an initial 74.1 and down considerably from 79.3 in May. Gallup's consumer confidence index slid downwards for the last four weeks and is back to where it stood in the first quarter of the year.
- U.S. consumers cut back in May with a spending fall of 0.1 percent. This the first decline since November 2011. Spending in April and March were revised lower, too. Personal income in May rose 0.2 percent so consumers chose to save more, which is another sign the lack of confidence in the economy.
Foodservice News This week
- Starbucks is expanding their wine, beer and "small plates" evening menu from the initial test in the chain's home turf of the Pacific Northwest to select stores in the greater Chicago area.
- Northerners think that things move slower in the south but research from the Sandelman Quick Track Study tells us that when it comes to fast food, the south reigns. The report states that the top ten markets with the most super heavy fast food users — individual with 20-plus visits a month — are Dallas, Houston, and McAllen, Texas; Memphis; Greensboro and Greenville, N.C.; Columbia, S.C.; and Lexington, Ky. The only two of the top 10 not in the south are Providence, R.I. and Huntington/Charleston, W.V.
- Tesco, parent of the Fresh & Easy food chain that prominently features a wide variety of take out meals, has been under pressure from investors because of the red ink the U.S. subsidiary is generating. Tesco's executives have promised to pull the plug on Fresh & Easy if the venture doesn't become profitable.
- NPD's CREST study reported that in the first quarter of this year that 6 percent of restaurant visits and 8 percent of restaurant spending were influenced by online marketing. Further, online marketing was effective in attracting new customers with online marketing-influenced visits, 26 percent were first time visits to a specific restaurant. This is more than twice the new buyer incidence for restaurants overall.
- Krispy Kreme, in what the company says is a carefully planned expansion, will open 25 new stores next year. Subway has opened their third restaurant in Romania with at least two more planned. Pollo Tropical has signed a multi-franchise agreement for at least five restaurants in Guatemala. Smashburger signed six new franchise partners, which will bring a combined new 44 units across the country. Wendy's plans to open 100 company owned units in the U.S. in 2013. Red Robin will be opening a restaurant in the Orlando area while stating that central Florida is "primed" for 8 to 10 units.
- CKE reported that comparable store sales were up 2.6 percent for the company with both Carl's Jr. and Hardee's both up 2.6 percent.