Written by Jerry Stiegler
While the sequester gobbles up all of the headlines, consumers continue to come to terms with the impact the newly enacted payroll tax is having on their disposable income, including their purchases of food prepared outside of the home. As a result, expect consumers to cut back and return to their value-conscious ways.
Unfortunately, the conversation out of Washington, D.C. these days remains focused on how the federal government plans to manage its business. That's too bad because, as this discussion continues to play out, consumers continue to grapple with the impact of new taxes and a shaky economic climate.
For example, the National Retail Federation Reports the change in federal tax law that decreased the take-home pay of many working Americans is impacting household budgets. According to NRF's 2013 Tax Returns Survey, 73.3 percent of those polled say their spending plans are taking a hit.
This impacts the restaurant industry in several ways. Specifically, 33.5 percent of those polled plan to reduce how much they dine out and 24.5 percent will spend less on "little luxuries," such as trips to coffee shops. In addition, 35.6 percent of those polled say they will look for sales more often and 46.4 percent say they will comparison shop more often. Increased pricing pressure is not good news for an industry facing mounting financial challenges in the forms of higher food prices, labor and healthcare.
But this could extend beyond the foodservice industry to other key business segments that serve as economic indicators, such as the automobile and consumer electronics industries as some consumers indicate they may be forced to delay major purchases.
Economic News This Week:
- Initial jobless claims for the week ending Feb. 16 totaled 362,000, an increase of 20,000. Every time claims drop people hope this indicates an improving job market. Unfortunately, the jobless claims seem to bounce right back up again. Meanwhile, Neilsen research's Global Consumer Confidence survey for the fourth quarter of 2012 found job security was the number one concern of consumers around the world, matching worries about the economy in general. A poll by the Gallup Organization this month revealed that 73 percent of those surveyed said it was a bad time to find a quality job with just 23 percent saying it was a good time.
- A pile of data on the housing market was mostly positive the past week. Building permits increased 1.8 percent to an annualized rate of 925,000, according to the U.S. Department of Commerce. Building permits issued in 2012 were the best in four years. But housing starts declined 8.5 percent over December to an annualize rate of 890,000. The fall could be weather related. Some housing experts anticipate the market will add one million new units in 2013 but this would be approximately half of what is considered a healthy growth rate. Finally, existing home sales in January grew by 0.4 percent, to an annualized 4.92 million from 4.9 million in December, according to the National Association of Realtors.
- The Producer Price Index rose 0.2 percent in January. The Bureau of Labor Statistics said food prices jumped 0.7 percent after a sharp drop in December. Vegetable prices led the way with a 3 percent price increase. Core Prices, which exclude food and energy, were also up 0.2 percent. In the last 12 months producer prices increased 1.4 percent while at this same time last year they had increased 4.1 percent in the previous 12 months.
- The Consumer Price Index was unchanged for January. The Index was also unchanged in December. The core index, which excludes food and energy, rose 0.3 percent. January consumer food prices were flat after rising the last 10 months. Shelter, transportation, vehicles, medical care, and apparel prices all rose.
- The Philadelphia Federal Reserve's survey of manufacturing activity took a major hit, falling to minus 12.5 in February from minus 5.8 in January. The rather positive outlook of manufacturers in the survey may indicate the drop will be temporary.
- The Conference Board's collection of leading economic indicators for January increased 0.2 percent with 6 of the 10 indicators rising. A Conference Board spokesperson said the results indicated continued slow expansion from an economy that was "sound but sluggish."
- U.S. Economic Confidence as measured by a Gallup Organization poll, increased by 2 points from the previous week's result and now is virtually in line with the 5-year high. However, the index remains in negative territory at minus 11.
- The Gallup Organization's U.S. Satisfaction Survey shows 27 percent of Americans are satisfied with the way things are going in the U.S. today but 73 percent dissatisfied. Political leanings play a major roll in the findings with 47 percent of Democrats satisfied, 24 percent of independents satisfied and just 9 percent of Republicans satisfied.
- The restaurant industry figured prominently in the lead editorial of the Wall Street Journal entitled "ObamaCare and the 29ers.'" The editorial dealt with the need to provide healthcare insurance for employees at operations with 50 or more employees and for those working 30 or more hours a week. Mentioned as (possible) companies who are capping their number employees at 49 and cutting back hours to 29 or less were Burger King, McDonald's, Red Lobster, KFC, Dunkin' Donuts and Taco Bell. The CEO of Dunkin' Donuts is quoted as requesting that health care law's definition of full-time employment be revised to 40 hours so workers' hours won't be cut.
- Non-commercial foodservice shows signs of growth, with the healthcare and business and industry segments showing strength, according to a news release from Technomic. Overall, Technomic forecasts non-commercial operations will grow at a nominal rate of 3.7 percent this year creating "many opportunities for suppliers to the industry."
- Applebee's was selected by Fast Company Magazine as one the 50 Most Innovative Companies.
- The Franchise Business Index increased by 0.7 percent in January after a 0.4 percent increase in December. The International Franchise Association sees "modest growth in 2013" and believes there is pent-up demand for growth felt by many franchisors and franchisees following the uncertainty of the "fiscal cliff" last year.
- Food away from home prices increased 0.1 percent in January, according to the Bureau of Labor Statistics' Consumer Price Index.
- Raising menu prices is "absolutely the last thing for a successful restaurant to do," according to a restaurant operator quoted in a recent article in the Clarion Ledger of Jackson, Miss. The story relates how operators are cutting costs, spotlighting items on the menu to steer customers away from beef, and group purchasing as ways to adjust to the rise in their food costs without raising menu prices.
- Changing its pricing system for chicken wings is Buffalo Wild Wings' way of offsetting skyrocketing wing prices. Instead of selling wings by count the chain is selling by weight. Obviously this is a method of increasing prices. BBW says the new pricing system, which is now in 64 locations, is "being tweaked."
- Growth Chains: Marco's Pizza, which opened 61 locations last year, is planning on adding 104 locations in 2013. Buffalo Wild Wings is planning new stores in this year, which should put them right at the magic 1,000 restaurant mark. Corner Bakery is looking for an area developer in greater Boston who can commit to about 18 stores. The Cheesecake Factory has signed a development agreement calling for at least 12 restaurants in Mexico and Chile over the next 8 years. Uncle Maddio's Pizza Joint will open 20 more restaurants this year with 100 more in development. The Kwik Trip C-store chain will open "approximately" 15 stores this year.
- Comparable Store Sales Report: Bloomin Brands (Blended up 3.5 percent, Outback up 5.3 percent, Carrabba's down 0.4 percent, Bonefish up 1.0 percent, and Flemming's up 4.0 percent), BJ's Brewhouse (up 3.0 percent), Bob Evan's (up 1.6 percent), Bravo Brio (Bravo up 1.7 percent, Brio down 0.5 percent), CEC Entertainment (down 2.2 percent), Cheesecake Factory (up 0.9 percent), Del Frisco (up 2.7 percent), Denny's (system up 1.7 percent, company-owned up 0.5 percent, and franchised up 2.0 percent.), Grand Lux (down 3.2 percent), Jack in the Box (system up 1.9 percent, company-owned up 2.1 percent, and franchised up 1.8 percent), Kona Grill (up 0.1 percent), Mimi's Café (down 4.0 percent), Red Robin (up 1.4 percent), Texas Roadhouse (company-owned up 4.4 percent and franchised up 4.5 percent) and Tim Horton's (up 3.2 percent).