The No. 1 foodservice chain will be … Starbucks? Operators continued to hire in December. The NPD Group sees restaurant traffic stalled this year. Prediction is that menu prices will remain high but restaurants will offer deals and promotions. Well known Wall Street analyst Mark Kalinowski predicts that Starbucks will increase its restaurant count by 8.4 percent and same-store sales by +5.0 percent in 2017. Further, he believes some time in the future Starbucks will have the industry’s largest market capitalization, bypassing current leader McDonald’s.

Well known Wall Street analyst Mark Kalinowski predicts that Starbucks will increase its restaurant count by 8.4 percent and same-store sales by +5.0 percent in 2017. Further, he believes some time in the future Starbucks will have the industry’s largest market capitalization, bypassing current leader McDonald’s.

Kalinowski feels that the beverage business has more room to grow and less competition than the burger market. Starbucks has 25,000 units and aims to have 37,000 locations by 2021. But Kalinowski believes that number is conservative and Starbucks could eventually reach 50,000 units, making it the No. 1 foodservice operation in store count. 

There have also been predictions that Chick-fil-A could pass McDonald’s U.S. sales given fast expansion of locations and high sales volume per unit. 

Economic News This Week

• The ADP National Employment Report found the U.S. private sector created 154,000 new jobs in December. That is about 30,000 jobs below the average monthly average this year for the payroll processing company’s survey. Initial jobless claims fell 28,000 for a total of 235,000 for the week ending Dec. 31. The less volatile 4-week moving average fell 5,750 to a level of 256,750. This marks the 96th consecutive week that jobless claims were below 300,000. 
• The Bureau of Labor Statistics reported that the U.S. added 156,000 jobs in December. This was considerably less than the consensus forecast of 185,000. Moreover, the unemployment rate crept up to 4.7 percent, an increase of 0.1 percent from November. Perhaps the most positive news was average hourly earnings increased by 10 cents and for the year is up 2.6 percent. Earnings have been slow to recover since the end of the recession. (For foodservice hiring last month, please see the Foodservice News This Week Section below.)
  
• U.S. auto and light truck sales set an all-time annual record. Automotive News estimates 2016 sales were 17.59 million, up from 17.3 million last year. December sales were very strong, helped by SUV volume and heavy manufacturers’ discounts.Factory orders decreased 2.4 percent in November after increasing for 4 consecutive months. Shipments fell 0.1 percent and unfilled orders also declined 0.1 percent New orders for manufactured durable goods (goods that last 3 years or more) were down 4.5 percent after 4 consecutive months of increases, but shipments of manufactured durable goods rose 0.1 percent while unfilled orders of manufactured durable goods declined 0.1 percent. 
• The Institute for Supply Management’s Production Manufacturing Index had a strong finish in 2016. The December totaled 54.7, up 1.5 percent from November.  (Any number above 50 shows increasing activity.) The New Orders Index rose 7.2 percentage points for a reading of 60.2. The Production Index rose 4.3 percentage points to 60.3. The Employment Index rose 0.8 percent to 53.1. Of 18 manufacturing industries included in the PMI survey, 11 reported growth in December. 
• The Institute for Supply Management’s Non-Manufacturing Index was even with November’s report at 57.2 percent. (Any number above 50 indicates increasing activity.) This is the 83rd consecutive month with expanding activity in the service sector. The New Orders Index rose 4.6 percentage points to 61.6 while the Employment Index fell 4.4 percentage points to 53.8. Of the 15 service industries surveyed by ISM, 12 reported growth in December. This included accommodations and foodservice sector. 
• November construction spending rose 0.9 percent over October and 4.1 percent from November 2015. Residential construction spending was up 0.1 percent over October. 

Foodservice News This Week

• Government employment reports for December show strong foodservice hiring. Foodservice operators added 29,600 new employees for the month. This represents 20 percent of all the new jobs added in the U.S. for the month. In 2016 restaurants and bars added 247,000 jobs,  down considerably from the 359,000 jobs gained in 2015. 

• NPD Group says U.S. restaurant traffic to remain “stalled” in 2017. However, NPD reports quick-serve restaurants increased traffic by 1.0 percent, up from flat traffic last year. The research company says that firms can do better than the forecast if they differentiate themselves from the competition, stay relative in consumers’ minds, focus on innovative products, offer unique promotions, keep pricing competitive , tout the benefits of eating at restaurants versus eating at home, and deliver an enjoyable experience. 
• Menuprices will remain high according to The Chicago Tribune. While the higher food costs that were the primary reason for restaurants to hike prices have now moderated, labor costs continue to rise due to minimum wage increases and a more competitive employment market. Instead of taking across-the-board price cuts, operators will offer discounts and promotions.

• The Break Time c-store chain has a new store design featuring a Smokestack Bar B Q concept. The design offers raised ceilings, wood embellishments, and a calming color palette as well as the new carry out food operation. 
• McDonald’s enters a new market. The burger giant has opened in Vatican City, Rome, Italy, despite complaints from both civil and religious authorities. The new restaurant sits about 100 yards from the Pope’s residence. 
• Corporate Stirrings: Cheddar’s Scratch Kitchen has acquired 44 restaurant locations from the chain’s largest franchisee, Greer Companies. Greer will still own the land and buildings and be a minority shareholder in Cheddar’s.  Sonny’s BBQ has sold 9 of its restaurants to CFO Brandon Manly and his partner franchisee, Heritage Management. Manly will relinquish his corporate role to concentrate on running the stores, which will include 2 new ones he plans to open. Sonny’s CEO Bob Yarmuth said the company can now focus on expanding the chain. Sonny’s will retain their flagship restaurant.  Rita’s, the 600 store water-ice and custard chain, has sold a majority ownership position to a partnership of Argosy Private Equity and MTN Capital. Price was not disclosed.
• Growth Chains: Papa John’s Pizza will open 25 restaurants in the Boston area over the next 5 years. The RaceTrac c-store chain opened 24 stores in Florida in 2016 and plans to open 50 more this year. Dunkin’ Donuts will open 69 locations in Louisiana over the next several years with one partner being Drew Brees of the New Orleans Saints.
• Comparable Store Sales Reports: Denny’s (system up 0.5 percent, company owned up 0.1 percent, and franchised up 0.6 percent), Ruby Tuesday down 4.1 percent, and Sonic (system down 2.0 percent, company owned down 2.4 percent and franchised down 2.0 percent)

For details and same-store sales of other chains, see the Green Sheet.