As economists continue to assess the impact of Hurricane Sandy, there's still plenty of economic news to report that impacts the foodservice industry, as noted in this edition of This Week In Foodservice. We also take a look at what one analyst has to say about the potential outcomes of the general election.

Despite declining 0.3 percent in September, the National Restaurant Association's Restaurant Performance Index reached 100.4 in September, which means the industry remained in expansion mode for the 11th consecutive month.

The Current Situation Index dragged down overall results by reporting softer comparable store sales and a net decline in customer traffic. Thus, the Current Situation Index dropped 0.7 percent to 99.9. Perhaps mirroring the enhanced consumer sentiment studies have reported in last few weeks, operators responding to the NRA's query gave a boost to the Expectations Index, which rose 0.2 percent to 100.9.

When it came to investing in expansion, remodeling and/or major equipment purchases, 49 percent of the survey respondents made capital expenditures in the last three months. This is up from 41 percent in August. As for the future, 44 percent of the operators plan on making a capital investment in the next 6 months. This is identical to the August findings.

Economic News This Week

  • Employment and unemployment data, once again, took center stage this past week. Payroll service provider ADP reported that the private sector added 158,000 new jobs last month. ADP said construction jobs grew by 23,000 while the manufacturing segment fell by 8,000. First-time jobless claims fell by 9,000 to 363,000 while the more stable 4-week average of claims seemed stuck in about the same range it's been in for months, coming in at 367,250. The Bureau of Labor Statistics observed that employers remain "very cautious." Non-farm payrolls rose 171,000, which was way above most forecasts. Private sector jobs increased by 184,000 but government employment lost 13,000 jobs. Unemployment, which is determined by another study, rose to 7.9 percent from September's 7.8 percent as more people entered the work first. The bottom line seems to be that the job picture is improving albeit at a very slow rate.
  • Manufacturing activity in the U.S. as measured by the Institute for Supply Management inched up to 51.7 in October from 51.5 in September. Any number greater than 50 indicates expansion in manufacturing.
  • Non-manufacturing (i.e., services) slowed in October. The Institute for Supply Management reported its index declined to 54.2 from 55.1 in September. Like the Institute's Manufacturing Index, any number greater than 50 indicates business expansion.
  • The Chicago Federal Reserve's Production Manufacturing Index improved very slightly in October increasing to 49.9 from 49.7 in September. A score of 50 or more indicates expanding manufacturing activity.
  • Factory orders rose a brisk 4.8 percent in September after falling by 5.1 percent in August. However, the Department of Commerce noted that orders for commercial aircraft accounted for a significant part of the increase. Without orders for transportation equipment and defense department orders, factory orders were up 0.2 percent.
  • Construction spending rose 0.5 percent in October after dropping by the same percentage in September. The Commerce Department also reported that residential home construction grew 2.8 percent. Construction employment has also been rising although it is far from where it was before the recession.
  • October retail sales as reported by major department stores, apparel stores and specialty stores were described as "decent" by one observer and "solid" by another. Some major retailers' sales were up but missed expectations. The Thomson Reuters Same Store Sales Index was up 4.7 percent last month, which was better than expected. Hurricane Sandy's impact on sales was not felt in October results because most retailers had already closed their books for the month. It is also felt that Sandy had minimum impact on Halloween sales since most consumers had already purchased their candy, costumes and decorations.
  • Auto sales in October dropped to an annualized rate of 14.3 million cars and light trucks vs. the annualized rate of 14.9 million in September. Most manufacturers, with the exception of Nissan, reported sales were up. Ford calculated that Hurricane Sandy cost the industry 25,000 sales in October. Dealers in the Northeast who did not have damage or loss of power and thus could stay open reported very light showroom traffic.

Foodservice News This Week

  • Foodservice employment increased by 22,900 jobs last month according to the Bureau of Labor Statistics. Out of the 184,000 new jobs added in October, 12 percent were in the foodservice industry.
  • Sysco reported sales of $11.1 billion, an increase of 4.7 percent for the quarter ending September 29. The company said acquisitions accounted for 0.5 percent of the increase while currency fluctuation decreased sales by 0.3 percent. Sysco said case volume rose 2.9 percent or 2.6 percent without acquisitions. Sysco calculated food cost inflation was 2.2 percent. Assuming that Sysco was able to pass along their food cost increases, "real" dollar growth was +2.3 percent. Diluted earnings per share dropped by 3.9 percent but "Excluding certain items and business transformation expenses" diluted earnings per share increased by 3.6 percent. Given Sysco's penetration in the foodservice market, an argument can be made the company results is a rough index of the industry's performance.
  • What effect will results from the general election have on the restaurant industry? According to Wells Fargo Securities LLC as reported in, a Democratic victory will mean higher healthcare and compliance costs leading restaurants to increase staffing levels and reducing employee hours per week to less than 30 in order to avoid paying for healthcare insurance. Second, a Democratic victory will result in more menu labeling requirements, which may mean restaurants will reduce portion size to keep calorie counts down. All this might result in the failure of smaller chains. As for a Republican victory, Wells Fargo believes the unpopular parts of the healthcare initiative will be "defunded," policies will be put in place to "promote job growth and regulatory certainty," and a corporate tax reform may be enacted that would reduce complexity but might also eliminate "friendly" loopholes.
  • McDonald's Dollar Menu was and is a great lure to get customers into the restaurant but a decade of commodity food price increases make it a "trickier proposition" according to an article in Crain's Chicago Business. There is now a gulf between the Dollar Menu items and other menu listings which instead of "up selling" may be pushing McDonald's customers toward the Dollar Menu. While franchisees' grumble, stock analysts as a group seem to like the bargain menus because they drive sales but the analyst at Morningstar, Inc. thinks McD's will be in for a tough couple of quarters.
  • Burger King is expanding the test of their "BK Delivers" which is now in parts of the District of Columbia, Maryland and Virginia to 35 locations in Miami-Dade and Broward counties in Florida. The delivery program requires customers to be within a 10-minute drive of one of the participating locations, place a minimum order of $10, and pay a $2 delivery fee.
  • Growth Chains: Circle K is converting 27 stores to their brand that were purchased from Sun Pacific in Washington. McDonald's will add 12 stores in Ireland by the end of 2015. NYPD Pizzeria has announced plans to go national, building on the 8 stores they have now.
  • Comparable Store Sales Reports: Applebee's (up 2.0 percent), CEC Entertainment (down 2.3 percent), Chuy's (up 1.5 percent), Ignite Restaurant Group (up 0.4 percent), IHOP (down 2.0 percent), Jamba (system up 2.5 percent, company-owned up 3.9 percent and franchised up 1.0 percent), Mitchell's Fish Market (up 4.6 percent), Papa John's (North America up 2.5 percent, company-owned up 5 percent and franchised up 1.7 percent), Ruth's Chris (up 5.9 percent) Starbucks (up 7 percent), and Texas Roadhouse (company-owned up 3.6 percent and franchised up 4.9 percent)

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

Foodservice Supplier Financial Results this week are for Newell Rubbermaid and Sysco. Please click here For full Supplier Financial Data.