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January US foodservice sales up; menu prices rise faster than inflation

Sales at U.S. restaurants and bars grew faster than the broader retail sector in January as average menu prices in the first two months of 2019 accelerated quicker than the cost of cooking at home, according to an analysis by S&P Global Market Intelligence.

Restaurant, bar sales continue to climb

Total sales for "food services and drinking places" in January grew 5.4% year over year to a seasonally adjusted $60.80 billion, according to U.S. Census Bureau data released March 11. The category includes restaurants, food service contractors, caterers and bars.

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Total retail sales grew 2.3% in January over the previous year, according to the Census Bureau.

"This pace [sales for food services and drinking places] is down from a recent peak of 9.6% in July 2018, but represents continued share of wallet gains as growth exceeds retail sales growth, excluding gasoline stations, for the ninth consecutive month," SunTrust Robinson Humphrey analyst Jake Bartlett said in a March 11 note to clients.

A 35-day U.S. federal government shutdown delayed the release of January and February sales figures. The Census Bureau will release February sales data on April 1.

The growth correlates with U.S. employment gains, said Hudson Riehle, senior vice president of the National Restaurant Association's research and knowledge group. The partial shutdown increased the unemployment rate in January to 4%, the rate in February dropped to 3.8% versus 4.1% a year earlier, according to the Bureau of Labor Statistics.

"When there are more people employed, they have less time for at home preparation and also they have greater income to support restaurant spending," Riehle said in an interview.

Menu prices on the rise

The total "food away from home" category of the consumer price index, or CPI, grew 2.8% year over year in January on an unadjusted basis and 2.9% in February. The subindex represents average prices diners pay at restaurants, cafeterias and other food vendors.

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Limited service meals and snacks grew at 2.8% year over year in January and 3% in February, according to Census data. The category includes restaurants where customers typically pay before they eat, such as fast-food chains The Wendy's Co. or McDonald's Corp.

Full-service meals and snacks grew at 2.7% in January over the previous year and 2.8% in February. The category includes restaurants with wait staff where customers typically pay after eating, such as Darden Restaurants Inc. chains Olive Garden and Texas Roadhouse.

The combined food away from home category grew faster than "food at home," which represents the average price U.S. shoppers pay grocers at retail. The food at home category grew 0.6% in January over the same month in 2018 and 1.2% in February, according to the Census Bureau.

Overall inflation advanced 1.6% in January and 1.5% in February year over year, according to the government data.

Despite paying higher average checks, consumers are happy to pay for meals outside the home, Riehle said, citing National Restaurant Association surveys showing that more than 90% of diners enjoy their restaurant experience.

"The focus from the consumer standpoint is taking labor out of the home kitchen," Riehle said.

Employment gains accelerate to 1-year high

Food services and drinking places added 52,900 jobs in January and February, reaching 12.13 million total jobs in February on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. The two months represent the highest year-over-year employment changes for the food services since August 2017.

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Restaurant job gains are outpacing changes at other retailers. The retail sector shed 6,100 jobs in February and added 20,800 in January.

On a year-over-year basis, food services and drinking places also added jobs at a faster pace than the all non-farm industries index. Restaurants and bars grew jobs by 2.5% in January, versus a 1.9% increase in total nonfarm jobs, and 2.4% in February, compared to total nonfarm gains of 1.7% for the month.

Major restaurant chain stocks decline

Ten of the stocks for the 15 largest publicly traded U.S. restaurants chains dropped in the month ended March 15, according to Market Intelligence.

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Domino's Pizza Inc. led the declines with a 13.3% drop. The pizza chain on Feb. 21 reported fiscal fourth-quarter adjusted EPS of $2.62 and same-store U.S. sales growth of 5.6% that missed Street estimates, analysts said.

Despite the misses, analysts said the company's strong fundamentals remain intact.

"We believe the market has over-reacted to a Street 'miss,' which was arguably projecting same-restaurant sales too aggressively," Stifel analyst Chris O'Cull said in a Feb. 21 note to clients.

YUM! Brands Inc. — owner of Taco Bell, Pizza Hut and KFC — led the gains with a 7.2% increase. McDonald's, Chipotle Mexican Grill Inc., Dunkin' Brands Group Inc. and Wingstop Inc. also saw single-digit stock price increases during the month, outpacing the 1.2% increase in the S&P Composite 1500 Restaurants subindex.