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This post is part of the On the Margin blog.
Restaurant sales are slowing, and low grocery prices are to blame.
We’ve been saying this for some time, of course. But it appears that falling prices at the supermarket prove at least tempting enough for consumers to pull down restaurant sales — absent any other factor.
We analyzed federal data on restaurant sales and compared it with inflation data for restaurants and grocers, dating back to 2009. Over that time, commodity prices have fluctuated wildly, thanks to rising demand for certain items and horrific droughts and recession.
Commodity prices are a big deal for restaurants, of course, but they’re a bigger deal for grocers because they’re a much larger component of the industry’s overall costs. As such, grocers’ prices tend to fluctuate much more than restaurants — where labor and real estate costs play a bigger role.
The inflationary “gap” between the two largest purveyors of food to consumers has grown over the past two years into a gulf — it was 410 basis points in February, for instance, which was actually the lowest gap in eight months.
That gap has been widening since January 2015, when grocers’ price increases actually outpaced restaurants’ price hikes by 20 basis points.
That month was also peak restaurant. Industry that month increased by more than 10 percent, according to federal retail sales data. The rate of growth has been gradually slowing ever since. In December, restaurant sales grew just 2.5 percent, the worst in three years.
But that’s not the first correlation between movements in the pricing gap and movements in restaurant sales. When restaurant prices are increasing at an appreciably higher rate than they are at grocery stores, overall restaurant sales slow.
And restaurant sales rise when grocers raise their prices at higher rates.
In 2009, restaurant sales were in decline. At the time, the industry was also raising prices somewhat aggressively, making for gaps that exceeded 500 basis points some months — higher than the gap we’ve seen lately.
By 2011, the situation had reversed. Grocers were raising prices at rates that were much higher than restaurants, and restaurant sales surged. By 2013, once again the gap shifted into grocers’ favor, and restaurant sales slowed.
Smart people will recognize those years and think, “Hey, wait a minute …”
In 2009, of course, the world was in a generational recession. People didn’t eat out as much because too many of them were broke and out of work.
In 2011 and 2012, the government cut Social Security withholding taxes, providing an income boost to many Americans and generating restaurant sales, at least theoretically. By 2013, when restaurant sales slowed, that tax rate was returned to normal.
Oh, and gas prices plunged in 2015, providing a boost akin to that 2011 decrease in the FICA tax.
As such, during those years, observers pointed to those other factors as the primary reasons for shifts in restaurant sales.
The problem now is that we don’t have a simple explanation for why consumers are opting to eat more at home, other than the fact that prices have fallen at grocers while restaurants keep increasing theirs.
Sure, consumers feel their discretionary income is not as strong as it should be. We’ve examined several other factors: The election, Netflix, growing use of social media, improving fortunes of small chains and independents, even delays in tax refunds.
But unemployment is low. Gas prices have remained low, fluctuating only modestly from one month to the next, and certainly not enough to move the needle on restaurant sales. Wages are up.
I’m certainly not ignoring potential factors behind the slowdown in restaurant sales. But it’s difficult to look at that chart without coming away with the idea that lower grocery prices are giving some consumers an excuse to stay home — regardless of the temptation of Netflix or election returns.
So what should restaurants do? Wait it out, probably. Because history suggests this gap won’t last long.
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at firstname.lastname@example.org
Follow him on Twitter: @jonathanmaze
Four Foods Group on Wednesday said it has purchased 48 Little Caesars restaurants in Alabama and Louisiana, continuing the Utah-based company’s rapid expansion into new territories and concepts.
The deal doubles the size of the 9-year-old company, at least in terms of units. Four Foods currently operates 44 Kneaders Bakery & Café restaurants. It also operates two R&R Barbecue locations and acquired the Gilbert, Ariz.-based The Soda Shop in January.
The deals now give FFG 97 restaurants in Utah, Arizona, Nevada, Colorado, Alabama and Louisiana, with annual revenues this year projected to exceed $150 million.
“We have now become one of the leading restaurant concept incubators and management growth companies in America, and we are just getting started,” company co-founder and CEO Andrew Smith said in a statement.
The Little Caesars announcement came the day after Four Foods said it secured $33 million in financing, including $22.7 million in acquisition financing from the lender CIT Group Inc., and $10 million from private investors and current shareholders.
In Little Caesars, Four Foods will get into one of the largest pizza chains in the country. And the franchisee is familiar with the area where the restaurants being acquired are located: Shauna Smith, FFG’s co-founder, is an Alabama native.
Four Foods cited Little Caesars value, convenience and speed for its decision to buy into the brand, and indicated that the concept fits the operator’s long-term portfolio strategy.
“We have a deep love for the South and the hospitality, respect and work ethic that comes with Southern culture,” Shauna Smith said in a statement. “In this case, we have a terrific brand we believe is positioned for a lot of growth in these rural areas of Alabama and Louisiana. Four Foods Group will provide the capital and management structure needed to maximize growth in these areas.”
In addition to its corporate headquarters in American Fork, Utah, Four Foods will open a second corporate office in Birmingham, Ala., where it will house 28 employees.
Contact Jonathan Maze at email@example.com
Follow him on Twitter at @jonathanmaze
Promotions and a strong product pipeline will help Sonic Corp. meet its same-store-sales guidance for the fiscal year despite a 7.4 percent decline in the second quarter ended Feb. 28, executives said Tuesday.
The Oklahoma City-based drive-in operator reported system same-store sales declined 7.4 percent in the quarter, consisting of a 7.3 percent decrease at franchise drive-ins and an 8.9 percent decline at company-owned restaurants.
"Our second quarter results reflect a sluggish consumer environment, weather headwinds and share losses following exceptionally strong performance over the prior two years," said Cliff Hudson, Sonic CEO.
“As we enter the key spring and summer seasons, we believe a better balance of new product news and targeted value will result in sequential improvement in same-store sales and profitability.”
Hudson said in a call with analysts that Sonic was maintaining its projection of same-store sales down 2 percent to flat for the year.
Alexander Slagle, an analyst with Jeffries LLC, said in a note that Sonic executives indicated “underlying trends improved since mid-February into March, even during certain weeks when the comparisons were still particularly difficult.” Slagle added that the commentary suggested better sales comparisons in the second half of the fiscal year.
Hudson said the competitive environment was “very intense” in the second quarter, with food deflation driving a high level of promotional activity. The food deflation should diminish as the calendar year progresses, he added.
The CEO said Sonic’s marketing will focus on differentiated products.
“As we enter this spring and summer months, which are so important to our business because of higher volumes, our marketing approach look more like a typical Sonic playbook with strong premium innovation and periodic value offerings with both with new product news and core menu items,” he said.
Along with Sonic’s iconic Cherry Limeade, Sonic will focus on fruit slushes and blended products like Cream Slush, he said.
Sonic plans to introduce a new smartphone app in early summer that integrates various aspects of its new point-of-sale and other systems. The app will include mobile order and mobile pay, he said.
He noted that 15 years ago, only 5 percent of Sonic’s sales came through credit cards, and that has grown to 55 percent to 60 percent of sales.
“My view is we are going to provide a different experience for the customer versus our competition trying to use the same tool,” Hudson said, adding that it will give Sonic an advantage over other quick-service restaurants. “We will provide a different experience, more personalized experienced and we will get more information about them to able to be market them in a way our QSR competition will have difficult time matching.”
Net income was up 1.3 percent to nearly $11 million, or 25 cents a share, from $10.8 million, or 22 cents a share, in the prior-year quarter. Revenues were down 24.8 percent to $100.2 million from $133.2 million in the same quarter last year, reflecting refranchising.
The company opened 10 new drive-ins in the second quarter and refranchised 54 units.
Sonic has more than 3,500 drive-ins nationally.
Contact Ron Ruggless at Ronald.Ruggless@Penton.com
Follow him on Twitter: @RonRuggless
Carl’s Jr. and Hardee’s are ready to go back to food, not boobs.
In their advertising, that is.
After longtime CEO Andy Puzder stepped down earlier this month, after an unsuccessful bid for U.S. Secretary of Labor, and with new CEO Jason Marker coming on board in April, Franklin, Tenn.-based parent CKE Restaurants Holdings Inc. launched on Wednesday a new marketing campaign that attempts to bring Carl’s Jr. and Hardee’s back to their roots as “pioneers of the great American burger.”
Notably missing in the campaign are the bikini-wearing actresses and supermodels that have long been the focus of the company’s marketing efforts.
CKE explained its change in direction with a film by longtime ad agency 72andSunny, which portrays a fictional Carl Hardee Sr. returning to company headquarters to retake the driver’s seat.
It seems the grownups are back in charge.
Carl Sr. turfs out his ne’er-do-well fictional son Carl Hardee Jr., who is responsible for the “hot chick” ads and letting things “get a little weird.”
We meet young Carl in his office playing on a virtual reality headset. On the wall behind him is a large photo of the naked Charlotte McKinney, holding strategically placed burgers. McKinney starred in the company’s 2015 Super Bowl ad.Photo: CKE Restaurants/Fab Fernandez
Carl Sr. replaces McKinney’s photo with another glamour shot — of a burger — saying it’s time to shift the message to the company’s pioneering days of charbroiled burgers, drive-thru windows, putting bacon on everything and “whatever great American thing we think of next.”
Carl’s Jr. and Hardee’s recently became one of the first national brands to offer an all-natural, grass-fed beef burger in 2014 and 2015, respectively. The chains rolled out an all-natural turkey burger in 2015. Earlier this week, the chains introduced an all-natural charbroiled chicken breast fillet from chickens raised without antibiotics.
“CKE has always been driven by a pioneering spirit — and whether it was being the first hamburger QSR chain to charbroil burgers, igniting the movement toward all-natural products with the All-Natural Burger, or introducing the all-you-can-drink beverage bar, nobody has done more to shape the world of fast food as we know it than Carl’s Jr. and Hardee’s,” said Mike Murphy, CKE’s president and chief legal officer, in a statement.
“That extensive history of pioneering innovation is at the heart of this new campaign, and we couldn’t be more excited to not only continue evolving our brand, but also to share our story with a whole new generation of restaurant goers.”
The company is also modernizing its logos, using bold, yet streamlined, typeface. The yellow “Happy Star” remains a focus.Photo: CKE Restaurants/Fab Fernandez
Food photography has also been updated with an emphasis on “dripping deliciousness,” according to press materials.
Under Puzder, Carl’s Jr. and Hardee’s ads targeted the 18- to 35-year-old demographic of “young, hungry men.”
Brad Haley, CKE’s chief marketing officer, said in a statement that ads like the controversial Paris Hilton car wash commercial 12 years ago, were very successful.
But, he added, “It was very difficult for that kind of an ad to tell a more comprehensive story about the long list of things we do to make better food than anyone else in our space … or better food than most sit-down restaurants make, for that matter.”
CKE operates and franchises 3,800 restaurants under the Carl’s Jr., Hardee’s, Green Burrito and Red Burrito brands in 44 states and 41 countries and U.S. territories.
Contact Lisa Jennings at firstname.lastname@example.org
Follow her on Twitter: @livetodineout
After making a name in Hollywood, actor Danny Trejo is rapidly building a Mexican food empire in Los Angeles that will soon include tacos, coffee and doughnuts.
With partners Ash Shah and Jeff Georgino, who both also come from the entertainment industry, with no restaurant experience, Trejo launched Trejo’s Tacos in early 2016, in a former Taco Bell location.
The first location was fast casual, with a line of premium tacos and burritos created by chef Daniel Mattern, former chef of the L.A. restaurant Cooks County, and loosely based on Trejo’s mother’s recipes.
A second 100-seat, full-service location with a full bar, dubbed Trejo’s Cantina, opened last October, in the heart of Hollywood, and expanded on the menu.
A third location is scheduled to open in mid-summer, in the Silverlake neighborhood of Los Angeles, with a fourth to follow before the end of the year in a new University of Southern California mixed-use housing complex that’s under construction. A fifth unit is scheduled for Pasadena, Calif., but the exact location has yet to be revealed.
In addition, in April the partners plan to open Trejo’s Donuts & Coffee, taking over an existing doughnut shop. The coffee will be locally roasted and the doughnuts will “have a Mexican slant,” Shah said.
Under the operating company Larchmont Dining Group, the partners also plan to launch a retail line of hot sauces and sell their in-house-roasted coffee in retail stores.
“We want to be in the Mexican product business,” Shah said.
Trejo hopes to capitalize on a growing interest in contemporary variations of the traditional taco stands and trucks that can be found throughout the city.
“The idea was to create a Mexican brand that didn’t compete with the thousands of already existing taco shops across L.A., or even with Chipotle,” Shah said. “We wanted to have a place were we could take our own families, with good, healthy, clean Mexican food.”
For instance, Trejo’s chicken taco is made with high-end Jidori chicken, slaw, chipotle cream and pico de gallo in a lettuce cup, alongside the more traditional carne asada, carnitas and pulled beef brisket. There’s also a build-your-own kale salad, to which guests can add shrimp, salmon, steak, chicken and guacamole.
And there are several vegan options, like the black pepper tofu taco with caramelized shallots, serrano peppers, scallions and pickled onion; jackfruit with tomatillo slaw, guacamole and pico de gallo; and the cauliflower taco with corn, cashew cream, pickled onion and cilantro.
“There’s a huge vegan population out there that’s completely underserved,” Shah said.
The restaurants are open for breakfast, lunch and dinner, and serve traditional horchata, along with craft beer, wine, kombucha and nitro coffee.
For dessert: housemade churros with various sauces, like cajeta, strawberry and Mexican chocolate.
The average check is about $18, with beer and wine, and sales at the original Trejo’s Tacos, which has now been open for more than a year, have exceeded expectations by 75 percent, said Shah, although he declined to give specifics.
Trejo, who is known for mostly villain roles in the “Dusk Till Dawn” series, as well as “Spy Kids,” “Heat” and “Machete,” brings a celebrity factor that will help translate the brand outside the Los Angeles market, Shah said.
“He brings for us a lot of credibility, and makes it newsworthy, and gives us a big social presence,” he said. “But, at the end of the day, you have to deliver good food and good value, or they’re not coming back.”
The partners hope to take Trejo’s to Texas, the East Coast and the Northwest, Shah said, but first they plan to expand beyond Los Angeles into Southern California.
There are no plans to franchise, and so far growth has been organic, he said.
“I hate the word chain. We want to grow the business,” Shah said. “We have ideas about where we want to open, but with that growth comes infrastructure that we don’t have in place right now.”
Contact Lisa Jennings at email@example.com
Follow her on Twitter: @livetodineout
All photos courtesy of Trejo's Tacos
Pudding, flan and custard are plain, humble and found in the repertoire of many cuisines.
But chefs today are elevating these desserts by adding texture and unexpected ingredients to create adventurous, over-the-top and even better-for-you takes on these creamy sweets.
“We have this philosophy at Público to have 80 percent of our menu be approachable and 20 percent adventurous,” said Mike Randolph, chef and owner of the Latin wood-fired restaurant in St. Louis.
For dessert at Público, Randolph makes rice pudding an eating adventure by adding an unexpected savory element: foie gras.
To make the sweet-meets-savory pudding, Randolph cooks Missouri rice; thickens it with a custard base and tart, lime-marinated mango puree; and tops it with a grated, frozen foie gras torchon.
“The luscious, understated offal flavor of the grated foie gras just takes it to another level,” Randolph said.
Público Executive Chef and Owner Mike Randolph’s rice pudding with mango, lime and grated foie gras torchon. Photo: Público
The rice pudding has been on the menu since the restaurant opened in 2015. Randolph said customers are intrigued by the dessert and surprised to discover how well it works. However, he admitted that about 10 percent of guests ask for the dish without the foie gras.
In Seattle, Eric Rivera, executive chef of the Bookstore Bar and Café in Seattle, has created the Hottest Hot Chocolate, what he calls a “modern interpretation and combination of all chocolate desserts: ganache, custard, flan, s’mores.”
To prepare the dish, Rivera blends milk, milk chocolate, sugar, salt and carrageenan, and places it in a mold. When it sets, the cold, pudding-like dessert is brought to the table and heated by torching it with a flame to create a toasted hot chocolate of sorts.
“I wanted to do this in the dining room and have it be a hot and cold dessert that gives a ‘wow’ effect to the diner, while allowing different textures and flavors to develop by torching tableside,” Rivera said. “Plus, who doesn’t like torching things?”
The Hottest Hot Chocolate, a chocolate pudding that is fired like a s’more tableside at Bookstore Bar and Cafe in Seattle. Photo: Jackie Donnelly
The Hottest Hot Chocolate is the restaurant’s bestselling dessert, and Rivera said guests often post images of it on Instagram, Boomerang and other social media platforms.
Jonathan Kavourakis is also proud of his restaurant’s social-media-worthy pudding presentation.
The executive chef of Vandal, a restaurant and lounge in New York City, is known for indulgent global street food. Kavourakis’ dessert pièce de résistance is Jaime’s Big Sexy Puddin’, a dark chocolate and vanilla pudding for four served in a giant martini glass and garnished with cookie crumbs, funnel cake, Nutella pinwheels and white chocolate mousse cigars.
“In addition to tasting delicious, we wanted to make sure it was Instagram worthy, so we used a really large martini glass, dusted the rim in purple glitter, made white chocolate mousse cigars and a glitter-dusted funnel cake,” Kavourakis said. “What's sexier than that?”
In St. Louis, Elise Mensing, executive pastry chef of Gerard Craft's Brasserie, a traditional French bistro, is also bringing multiple creamy desserts together in one dish.
Mensing is currently serving a coconut rice pudding brûlée, a tropical take on standard rice pudding with the addition of a crunchy brûlée top to add texture, and a nod to Brasserie’s traditional French menu.
For the dessert, Mensing bakes jasmine rice pudding, then folds in a dairy-free cardamom crème anglaise, made with coconut milk. She then portions the rice pudding into brûlée dishes, sprinkles it with brown sugar and turbinado sugar, heats it through, and finishes by caramelizing the sugar right out of the oven.
“The coconut milk and cardamom subtly flavor the dish, and the jasmine rice and caramelized sugar add another element of texture and flavor that I think make the dish simple yet delicious,” Mensing said.
Meanwhile, other chefs are making pudding a nutritious dessert with the addition of chia seeds, a popular superfood that’s packed with protein and other important nutrients.
At Beatrix in Chicago, executive pastry chef Yasmin Gutierrez offers a chia seed pudding with chia seeds, coconut milk and pomegranate. And at Project Juice locations in Southern and Northern California, chef Sascha Weiss developed a mango-vanilla chia pudding with toasted almonds, which is dairy-free, vegan, gluten-free and organic.