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Nov 2008
Volume 6, Number 11
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Restaurant Industry Performance
The unprecedented changes in the financial markets over the past few months have led to economic uncertainty that affects all sectors of the U.S. and global economy. With rising prices and unemployment, and falling consumer confidence, the restaurant industry will definitely feel an impact.
Since January, the Dow Jones Restaurant Index has fallen by about 20%, compared to a fall of about 30% for the Dow Jones Industrial Index. While earlier in the year both indices were tracking fairly closely, the overall Dow Jones index fell more steeply than the Restaurants index. Regardless, the drop in value of the Restaurants index reflects not only overall market forces, but questions about the fundamental strength of the restaurant business. Restaurants have fared slightly better than the consumer services sector as a whole, which has declined 32%, in large part driven by steep declines in the travel sector.
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The decline has broadly affected the largest companies in the industry. Among the ten largest companies by market capitalization, the 20% decline still holds as an average. Within than, some performance has been steady - McDonald's is nearly even, with only a 2% decline - while other companies have been affected more severely, such as Starbuck's, with a 40% decline. In the casual dining segment, Darden is the only company in the top 10 by market cap, showing a 25% decline, while Brinker is off by almost 50%.
Simply put, restaurants succeed on the math of guests times check value, minus costs. Economic pressures make all of these variables move in the wrong direction - consumers want to eat out less often and spend less when they do, and operating costs such as energy increase. In a recent survey, Technomic found that 74% of consumers plan to visit restaurants less often, and this includes both full- and quick-service locations. Further, when they do visit, 50% of consumers and 70% of high-income consumers plan to spend less than normal. In September, total restaurant sales were $38.3 billion on a seasonally adjusted basis, which is a decline from August and the lowest level since April. This decline occurred with the backdrop of rising unemployment, and the worst decline in total retail sales in three years.
Industry analysts expect quick-service restaurants to fare better in an economic downturn than full-service restaurants. This rule of thumb is based on the notion that frequency of dining out is more resilient than spending - so consumers cut back on spending first, visits second. However, sales declines are being seen in quick-service restaurants as well, and the total sales forecast has been lowered to just 2.2%, from 3.6%, which itself was a lowered forecast from an original 4.9%.
Each month, the National Restaurant Association publishes the Restaurant Performance Index, which tracks current health and outlook for the restaurant industry. The index is based on a survey of restaurant operators on trends in traffic, sales, labor, and capital expenditures. It is reported for both current and expected performance. For the first ten months of 2008, the index is below 100, indicating key indicators are worsening. Sales and traffic are both reported as decreasing, and future expectations are uncertain given economic conditions. Same-store sales in particular were reported as decreasing eight months in a row. While these are survey responses and not based on actual guest counts, the sentiment is a very real barometer for the pressure felt in the U.S. restaurant industry. In the most recent survey, 31% of operators cited the economy as the greatest challenge to their business, followed by 22% identifying food costs as the number one problem. 55% reported a decline in traffic, and 48% reported a decline in sales. Looking forward, operators are slightly pessimistic, with 33% expecting economic conditions to worsen and a similar 33% expecting sales volume to decrease.
Unit or new store growth is also constrained by tight capital and credit markets. The National Restaurant Association was supportive of the recent action by the government to stabilize the financial system. Restaurants are an important part of the economy, where each $1 in restaurant sales creates $2 in sales in other industries. Restaurant operators expect to be able to expand with renewed access to credit.
Wholesale food prices rose 1.0% in September 2008, and are on track for the largest increase in 29 years. On a year-to-date basis, prices have increased 8.8%. Expectations are that food prices will continue to rise through 2009, although precise estimates are still being developed.
While retail gasoline prices have decreased significantly since peaking in July, food prices continue to increase. On a monthly basis, grocery prices increased 0.6%, and menu prices increased 0.5%. While food price increases have generally been targeted to recoup commodity food cost increases, they have a negative impact on purchases as consumers grapple with higher prices.
Consumer confidence hit the lowest levels since the index was started in 1967. At 38.0, this is lower than the previous low points in 1992 and 1974. The confidence index is based on a monthly survey of 5,000 households, and is normalized so 1985 is 100 points. Values less than 100 indicate pessimism, greater than 100 indicate optimism. The index has been below 100 since October of 2007, but October 2008 is a record low.
Moving forward, the outlook for the restaurant sector is uncertain due to the number of different factors in play: consumer confidence, employment and payroll, and food and energy prices. Broadly speaking, the critical driver of consumer spending is employment and payroll levels, so these should be the leading indicator of improvement in restaurants, as well as in the economy as a whole.
Sources: Wall Street Journal, National Restaurant Association, Bureau of Labor Statistics, Nation's Restaurant News, Technomic, QSR Magazine
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Lettuce
As the central California vegetable season winds down, we will see the quality and supplies of both romaine and iceberg lettuce start to decline. Most fields are tired and are on their second crop, plus under pressure from fall weather.
Supply will transition to Yuma around the week of November 3rd for iceberg and November 16th for romaine. With the transition, we should see quality improve. At the outset, head size will be on the small size and weights will be lighter. As the season rolls on, quality and supply will improve as usual.
Over the next couple of weeks, supplies are expected to be light, as temperatures remain cool and equipment is being moved. We expect to see increased price markets through the transition, until supply has reliably settled into southern Arizona.
For more information, please contact your Customer Service Representative or Jeb Johnson.
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Rail Information
The per mileage surcharge for November will be 39 cents per mile.
For more information, please contact your Customer Service Representative or Chris Doore-Taylor.
Gasoline Prices Falling
Across the country, from the West Coast to the Midwest to New England, gas prices continue to plummet. The price of a gallon of gasoline fell dramatically last week, down from its high of $4.11 a gallon just after the Fourth of July, to a nationwide average of $3.15 today, according to the Energy Information Administration.
The 33-cent price drop in the past week is the largest one-week fall on record. But what's the reason for the dramatic turnaround? Oil. Oil prices have been falling too, down 46 percent from the record high of $147 a barrel this summer, because of lower consumption. Slowing economic growth means less demand for oil and gas overseas and at home. It's the flip side of global financial turmoil.
Drivers are noticing the difference at the pump and in their pocketbook. According to the American Automobile Association, if gas stayed at $4 a gallon, as it was earlier this year, the average family would pay $4,800 a year filling up. We can only hope the trend will continue.
Source: www.abcnews.com
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Each month, one of our associates will share one of their favorite recipes using different Kingston products. We hope you will try one or all of our family recipes, and all of the great ways to enjoy our high-quality, wholesome products.
Monica's Fruit Salsa and Cinnamon Tortilla Crisps
Prep: 30 minutes Chill: 6 to 24 hours
Makes: about 3 cups salsa
Fruit Salsa
1 cup finely chopped strawberries
1 medium orange, peeled and finely chopped (1/3 cup)
2 large or 3 small kiwifruit, peeled and finely chopped (2/3 cup)
½ cup finely chopped fresh Kingston Sugar Pines pineapple
¼ cup thinly sliced green onions (2)
¼ cup finely chopped yellow or green sweet pepper
1 tablespoon lime juice or lemon juice
1 fresh jalapeño chile pepper, seeded and chopped (optional)
In a bowl combine strawberries, orange, kiwifruit, pineapple, green onions, sweet pepper, lime juice, and, if desired, jalapeño pepper. Cover and chill for 6 to 24 hours. Serve with Cinnamon Tortilla Crisps.
Cinnamon Tortilla Crisps
Combine ½ cup sugar and 1 teaspoon ground cinnamon. Brush ¼ cup melted butter or margarine over twelve 7-8-inch flour tortillas. Sprinkle tortillas with cinnamon-sugar mixture. Cut each tortilla into 8 wedges. Spread one-third of the wedges in a 15X10X1-inch baking pan. Bake in a 350 degree oven 5-10 minutes or until dry and crisp; cool. Repeat with remaining wedges. Store in a an airtight container at room temperature up to 4 days or freeze up to 3 weeks.
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Kingston Service Anniversaries
Join us in congratulating our team members on their many years of service.
Mike Anderson 8 Years
Janae Kingston 7 Years
Jeb Johnson 6 Years
New Employee
Karen Skinner joined Kingston as part of the accounting team, working on the general ledger for several of the Kingston companies.
A native of Washington state, Karen earned her accounting degree from BYU-Idaho. Before joining Kingston, Karen worked in the accounting department at Lockheed Martin. She and her husband Niklas live in Rexburg, Idaho. She enjoys baking, reading, running and weight training.
Halloween At Kingston
On Halloween, everyone at our headquarters in Idaho Falls dressed up in costume to celebrate. Here are some photos from our day of scary fun!
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