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Apr 2010
Volume 8, Number 4
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Restaurant Industry Performance
Since the beginning of 2010, overall stock market performance has been positive, with the Dow Jones Industrial Average rising almost 5%. While it is still early in the year for celebration, certainly the DJIA moving in a positive direction is good news, particularly given the impact of the Great Recession of 2008-2009. Even now, while economic growth is technically positive, persistently high unemployment near 10% and fears of a "double- dip" recession are tempering excitement.
In the restaurant business, operators have reasons for both caution and optimism. This is reflected in sector performance - the Dow Jones Restaurant & Bars Index has handily outperformed the market as a whole, rising almost 10% since January 1, a similar rise to the Consumer Services industry sector group.
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Retail sales in February, excluding auto purchases, rose 0.8%. This was very high versus expectations that the severe winter storms would keep shoppers at home. Versus last year, sales were up almost 4%. The U.S. economy is significantly driven by consumer spending, which accounts for 70% of economic activity.
The Restaurant Performance Index (RPI) is a monthly composite index that tracks the performance and health of the U.S. restaurant industry. In January, the index was 98.3, a slight (0.3) drop from December 2009. The silver lining was that the Expectations Index rose above 100 for the first time since March, 2009. The Expectations Index is based on operators' expectations for the next six months about sales traffic, labor and capital expenditures.
The RPI is based on a monthly Tracking Survey of restaurant operators. The index is reported relative to a steady-state value of 100. RPI values above 100 indicate expansion in the industry, and values below 100 indicate contraction. January 2010 was the 27th consecutive month of RPI below 100, indicating the prolonged period of contraction. The near-term optimism of the Expectations Index is encouraging, especially when accompanied by rising consumer spending.
The majority of operators (57%) reported a decline in same-store sales for January, with only 27% reporting an increase. Similarly, 54% of operators reported a decline in traffic, with only 30% seeing an increase. The increases in December seem to have been strictly seasonal, with higher traffic and sales for the holidays, rather than a definite return to growth.
The Dow Jones Restaurant & Bars Index Performance is an important snapshot of the industry's performance. Of course, it only includes companies which are publicly traded. The Index is based on the results of twelve of the largest companies based on market capitalization: Bob Evans, Brinker, CEC, Cheesecake Factory, Darden, Jack In The Box, Krispy Kreme, McDonald's, Papa John's, Ruby Tuesday, Sonic, and Starbucks. Of these, McDonald's is the only one to also appear in the Dow Jones Industrial Average as one of the largest U.S. equities. On a weighted-average basis, this group has seen returns in the +5% range in 2010. Some of the smaller stocks have outperformed, leading to a simple group average of +17%, led by Ruby Tuesday (+45%) and Krispy Kreme (+34%). All twelve stocks are positive for the year.
This trend is not borne out in the larger Restaurant Industry Group, which tracks seventy-two restaurant stocks, all publicly traded companies above a certain minimum threshold for market capitalization. Among this group, the simple average return, year-to-date, is +21%. However, of the seventy-two, fifteen are negative. The overall leaders are steakhouses, Ruth's Chris (+151%) and Morton's (+114%). Both of these equities were beaten down badly in the Recession, so the change is more expected than remarkable.
The challenge for all companies in the sector is a return to topline growth, following periods of deep discounting to maintain traffic. Many companies have relied on promotions to attract consumers during the Recession. This was particularly true of casual dining operators, who were seeking to retain traffic that might have migrated down to fast food outlets. Similarly, fast food operators were trying to protect from losing volume to other discount offerings or convenience store purchases.
Brinker has reported a 4-6% decline in same-store sales for their most recent quarter. Weekly sales for March have been trending more positive, which is leading to an improved forecast for 2010. As pressure throughout the casual dining segment eases, Brinker has ended its "3 for $20" promotion at Chili's, replacing it with a $9.99 "Fresh Pairings" appetizer+entrée offer instead. This has greatly improved margin and should improve sales. Some consumers will not come due to the lack of heavy discounting, but this was not sustainable over the long term. Brinker is expecting an overall decline of 1-2% in same store sales for the year, improved from a decline of 2-4% forecast earlier. Separately, Brinker is selling its On The Border chain.
For its most recent quarter, Darden reported a 5% increase in sales, including a 2% increase in same-store sales. Overall profit was higher, due to lower food cost and operating expenses. Darden has signaled it will continue to press on operating efficiency as a means to grow profitably, as it simultaneously continues to expand its brands and open new units. Among its key chains, same-store sales were up 1% at Red Lobster, 2% at Longhorn, and 2% at Olive Garden, and down 2% at Capital Grille and 1% at Bahama Breeze. Across the five brands, Darden opened 31 new restaurants, which accounted for much of the sales growth, as did 1-3% pricing increases at its core casual dining brands (Red Lobster, Olive Garden, and Longhorn). Performance for these was much better than the industry average, which was a 4% decline in same-store sales for the same period.
Globally, McDonald's reported sales volume growth of +5% in February, driven mostly by Asia/Pacific and the Middle East, which were +11%, versus +5% in Europe and +1 in the U.S. Consumer demand was mostly in core menu items, boosted by promotions for the Olympics and Chinese New Year. McDonald's is planning a summer promotion to sell all soft drinks, no matter the size, for $1. Dollar-drink promotions have been very successful for McDonald's in the past few summers, including last year's push for $1 sweet tea. More than 90% of McDonald's units participated in the $1 promotion in 2009.
Higher-end restaurants are seeing growth, as expense account spending returns and consumer spending on luxuries returns to near-pre-Recession levels. Additionally, good weather conditions for crops such as mushrooms, asparagus, and strawberries are giving chefs great, cost-friendly opportunities to experiment with new menu items. In 2009, high-end chains saw a 17% decline in sales, mostly driven by steakhouses. For 2010, while traffic is expected to grow, sales will still decline a further 1-3% due to discounting, and some remaining conservatism in consumer spending.
Throughout the rest of 2010, operators will remain wary but optimistic. As consumer spending rebounds and confidence builds, volume and profit should continue to grow. Companies will continue to put pressure on operating efficiency, while looking at expansion and promotion as ways to drive traffic and check growth from diners. Fast food performed better than other sub-sectors during the Recession time period, and will be pressed to maintain sales without steep discounts, in order to preserve profitability.
At Kingston, we will continue to support the growth and expansion plans of all of our customers. We believe bringing you the highest-quality produce, with reliable supplies, and attentive customer service, is the best way to help you succeed.
For more information, please contact your Customer Service Representative or Jody Boline.
Sources: Wall Street Journal, U.S. Department of Commerce, National Restaurant Association, Nation's Restaurant News, KPMG, Company Reports
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Broccoli
Inclement weather has affected both Southern and Northern growing regions for broccoli. This has led to highly variable quality and volumes. Supplies have generally been light, with unpredictable pricing. Currently, markets are higher than normal with low supply, and we are in the midst of a transition period, which makes the supply problem worse.
Suppliers are shifting from the desert growing regions of Arizona and southern California to the central California regions (Salinas Valley and Santa Maria). Some suppliers will have to shop older desert crop product to make up for shortfalls in the new supply. This will create more supply and consistency issues. Additionally, Easter is falling early this year, and the pre-holiday pull put increased pressure on supplies.
For more information, please contact your Customer Service Representative or Jeb Johnson.
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Rail Information
UPRR Railroad fuel surcharge for April is $0.14 per mile
Federal Transportation Bill Should Clean Up Dirtiest, Fastest Growing Transportation Sector: Freight
Congress should include comprehensive funding policies for the first time in the upcoming transportation reauthorization bill to both modernize freight transportation and clean it up by favoring innovations like those highlighted in a new report released March 15, 2010.
The clean freight innovation locations include, but are not limited to: Southern California; Chicago; Seattle; Norfolk, Virginia; and along the Gulf Coast between Port Manatee, Florida and Brownsville, Texas.
This report provides a roadmap for modernizing the U.S. freight system, making it more reliable and faster, and reducing greenhouse gases and air pollution," says Kathryn Phillips, director of the California Transportation and Air Initiative at Environmental Defense Fund, whose staff produced the report. "House and Senate committees writing the transportation bill should ensure funding for freight improvement delivers environmental benefits too. This report shows it can be done."
The report, The Good Haul, details 28 case studies of clean freight solutions that exist in the United States and internationally. Congress should direct any freight improvement funding to encourage clean freight solutions to improve freight's performance and protect public health and the environment.
"Now is ideal time to tackle these challenges," says James Corless, director of http://www.t4america.org/ Transportation for America, a coalition of more than 450 organizations nationwide focused on creating a national transportation program for the 21st century by modernizing our infrastructure and building healthy communities. "The upcoming reauthorization of the federal transportation bill is a great opportunity to help achieve a smarter, greener freight system."
For more information, please contact your Customer Service Representative or Jeremy Teeples.
Source: Environmental Defense Fund
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Each month in the E-News, we will share insights into the activities of the Kingston Quality Assurance team as they visit growers, packers, and distributors. We hope this will help give you more information on our commitment to food safety and security. This month's report is from Cindi Thompson, Food Safety/Quality Assurance Supervisor.
Cabbage Worms (in broccoli)
Broccoli plants are vulnerable to a wide variety of pests. Most of these are successfully controlled using modern farming techniques, but some cannot be avoided. When these slip through growers' defenses, they can wind up on consumers' plates.
A common offender is the Cabbage Worm, a type of maggot that affects broccoli. The Cabbage Worm is a late-season pest which likes to hide in bunches of fresh broccoli. Since it is green, it is hard to see and detect. Crops in California are monitored year-round for infestation levels in order to determine if the level warrants use of insecticide. The concern is that the broad-spectrum insecticide necessary to control Cabbage Worm also destroys beneficial insects. These beneficial insects help the crop stay healthy, and keep other pest populations in check.
Cabbage Worms are voracious. Often only two or three worms per plant is the critical mass for an infestation. QA inspectors look for holes being chewed from the centers of leaves, as well as entry holes chewed to the interior crowns of broccoli. Cabbage Worms are usually found on the undersides of the leaves and on the inside of the crown. They produce dark green droppings, which when noticeable are a telltale sign of infestation.
Serious infestation can mean the death of the plant, since the leaves can be chewed below the point where the plant can photosynthesize energy. Minor infestations ruin the marketability of the product. While not harmful if eaten, no consumer really enjoys having broccoli with a side of Cabbage Worms!
In addition to broccoli, Cabbage Worms can affect cauliflower, Brussels sprouts, collards, kale, mustard greens, turnip greens, radishes, turnips, rutabagas and kohlrabi. Proper diligence is needed to identify the pests, and assess infestation levels for the possible application of treatment in the growing area.
For more information, please contact your Customer Service Representative or Jeb Johnson.
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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.
Darcie's Arugula and Sweet Mini Pepper Salad
Ingredients
2-3 cups Kingston arugula
6-8 mini peppers (a mix of red, orange, yellow)
For Salad Dressing:
1-1 ½ T. Extra Virgin olive oil, enough to coat greens
Juice of ½ lime (about 1-2 tsp.)
½ tsp red wine vinegar
Salt and pepper to taste
Wash arugula, place in mixing bowl. Trim peppers on both ends. Using a small paring knife, cut out seeds, and cut peppers into rings.
Toss arugula with olive oil, then drizzle lime juice and red wine vinegar over the mixture. Season with salt and pepper, and toss again. Arrange pepper rings over arugula. Serves 6-8.
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Golf Tournament Results
Kingston hosted its 6th Annual Golf Tournament on February 19th, 2010. Once again, we returned to The Duke at Rancho El Dorado, in Maricopa, Arizona, outside of Phoenix. In response to economic conditions, this year's Tournament was a smaller, less elaborate one. We enjoyed the fun and fellowship with all of the participants.
This year, we had thirty-seven players from five states and Canada. The weather was picture-perfect, and the competition was friendly but tough! The overall winning team was Carson Chambers, Rick Christian, Hector Gonzalez, and Kent Sutherland. Second place team was Joel Higham, Dave Kingston Jr., Bill Hagins, and Alan Dodge. Third place team was Jerry Higham, Richard Connelly, and Anthony Vasquez.
In addition to the team prizes, individual winners were Jody Boline for longest drive, and a tie between Dave Kingston and Mike Gillespie for closest to the pin.
After the tournament, everyone gathered for an hors d'oeuvres reception, and the winning teams and individual golfers were recognized. Dave Kingston also shared some thoughts on the importance of maintaining traditions like our golf tournament as a way to build relationships and express our appreciation to everyone who is an extended part of the Kingston family.
Our 7th annual golf tournament will be in February, 2011. Look for an announcement in the E-News or from your Customer Service Representative.
Kingston Service Anniversaries
Join us in congratulating our team members on their many years of service.
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| Kari Compos 3 years |
Ashley McGavin 3 years |
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