IHOP
While IHOP’s strategy and execution provide a solid long-term positioning, the brand may need to pivot further towards value to weather the mid-term and possibly long-term economic environment.
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Jimmy Johns
While Jimmy John’s has taken important steps to improve its relevancy, a sustained sales rebound for the chain would certainly benefit from a return of office workers and an increase in the availability of affordable delivery drivers sufficient to support the chain’s “freaky fast” core equity that distinguishes in a crowded field.
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RR Dashboard: Capital Markets & Economy Apr 2022
• April was a difficult month for equities with both the RR $1B+ Index and S&P losing more than -8%. QSR stocks were hit hardest, evening-out some over-size gains during 2021 (relative to FSR).
• A -14.9% y/y decline in disposable income reflects: a tough compare with last year’s government stimulus benefits; exploding inflation (CPI for all items up +8.5%); and higher borrowing costs.
• Concerns about sales, labor, inflation and interest rates are beginning to weigh more heavily on valuations with both the QSR & FSR indexes falling into bear territory.
RR Dashboard: Sales Not Keeping Up with Cost Inflation
• Initial 3-year stack comp performance for the $1B+ chains reveal that QSR is still outperforming FSR despite less impressive headline sales numbers for 1Q:22 alone. Going forward prospects are less optimistic as indicated by RR’s recent consumer survey which measures intentions to eat-out over the next month.
• The BLS Foodstuffs Index notched another all-time high in April and is up +109.3% y/y on a 2-year stacked basis.
• While operators are working hard to lower controllable costs, they cannot drive sales sufficiently to maintain their store-level margins in the current inflationary environment.
Chili’s
Chili’s recent sales strength reflects its ability to distinguish itself in a crowded FSR space with an attractive Tex-Mex menu, fun experience, leading value and digital strength which looks like a winning formula in the casual segment which is otherwise challenged by a stressed consumer in pursuit of a discretionary purchase.
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Insights: 4Q & Full Year 2021 Same Store Sales
• 4Q:21 same store sales for the $1B+ Chains increased +11.5% (+10.4% 2-yr. stack) and increased +16.7% for full year 2021 (+11.0% 2-yr. stack).
• $1B+ Chain market share of the total foodservice industry (food away from home & grocery) increased +0.06% to 17.61% (-0.85% below its 2016 peak).
RR Dashboard: Sales Catching-Up with the Consumer
• April RR Intent to Eat Out Index plunged -13.7% y/y due to difficult comparisons with April 2021 when consumers benefitted from $1,400/person government stimulus payments.
• The Food at Home (grocery stores) CPI expanded at its fastest rate in 40 years (+8.6% y/y during 2/22) – surpassing both the QSR and FSR CPI for the first time since 7/20.
• The price for regular gas increased +$0.70/gallon (+20%) to $4.22 compared to last month (+50% y/y) and represents the highest price ever.
Jack in the Box
While Jack has done a good job of reviving an iconic West Coast brand in a crowded field, it remains to be seen what impact its premium positioning will have on traffic and sales given the current inflationary environment squeezing consumer income.
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RR Insights Journal March 2022
In this issue of our Insights Journal we explore impact of gas hikes on traffic by looking at comp sales correlations and franchisee comments. While the economic data suggests that consumers have some cushion to deal with the gas price shock, franchisees have a different opinion.
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4Q21 Investor Call Summary
All you need to know about 4Q21 Investor Conference Calls
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RR Dashboard: Growing Disconnect Between Inflation & Sales
• 4Q21 comps for the $1B+ Chains increased +11.5% and +10.5% on a 2-year stacked basis (’21 vs. ’19), but is it sustainable?
• Investors piled into FSR stocks as mandates are lifted across the country while weak QSR performance reflects concerns about the impact of record inflation on lower income consumers.
• 1Q:22 GDP outlook was already flat before the Ukraine and oil price shock (crude up +43% YTD to $110 on 3/2) added further headwinds to an already fragile consumer.
RR Insights Journal Feb 2022
● Considering the Risks of New Franchise Finance Lending Index
● What About All That Consolidation?
● $1B+ Chains Received $6.8B of Covid Relief
Restaurant Finance & 2H:21 Valuations
• Record breaking 2021 restaurant financing volume driven by pent-up borrower demand and increased consolidation.
• Lenders indicate a much stronger financial condition for QSR borrowers with FSR showing some improvement since July.
• 2H:21 valuation survey results indicate a further increase in franchisee EBITDA multiples with FSR outperforming QSR.
RR Dashboard: 2021 Restaurant Sales Set a Record
• 2021 restaurant system sales were record highs for both the $1B+ chains and, shockingly, for the independents and smaller chains according to government data.
• Stocks were particularly hard hit in January as concerns over inflation and rising interest rates were most worrisome for consumers & restaurants.
• While franchisee EBITDA multiples for the $1B+ Chains declined -1.7% according to RR’s preliminary 2H:21 valuation survey, they are expected to rise to 2019 levels during 1H22.
RR Think Piece – Jan
It’s going on 2 years since our world was turned upside down with government lockdowns, mask mandates, social distancing, remote work & schools and eventually a steady diet of new tech vaxxes. In our opinion, there is an opportunity for our country to grow strong in unity so long as everyone is allowed to work towards their own version of the American Dream (life, liberty and the pursuit of happiness).
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Annual Databook
Annual RR Databook provides benchmarking data for the $1B+ Chains including unit level sales & margins, new build costs, valuations, systemwide sales and unit counts by state.
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RR Dashboard: Optimism Not Tempered by Inflation
• While sales are off to an optimistic start, it remains to be seen what impact higher menu prices will have.
• Consumer spending faces significant headwinds.
• Ramping inflation prospects aggravated by elevated transportation costs.
New Unit Investment & ROI
Sky rocketing COGs & labor costs are driving sharply lower new build ROI which, in turn, is driving a move towards smaller footprint stores optimized for digital & off-premise as well as increasing use of ghost kitchens.
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RR Insights Journal – Dec
According to RR’s just released New Unit Investment Report, the sales-to-investment ratio for $1B+ chains declined dramatically in 2021 as higher construction costs (partially reflecting longer project completion times) more than off-set growth in new build AUVs.
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Jersey Mike’s
Jersey Mike’s is well positioned to maintain sales outperformance by leveraging its core equities around off-premise, a compelling quality/service positioning, a brand commitment to give back to its customers as well as its communities and effective digital/loyalty marketing efforts.
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3Q:21 Investor Call Analysis
All You Need to Know About 3Q21 Investor Conference Calls
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RR Dashboard: Nov 2021
• 3Q21 total restaurant industry revenues increased +30% y/y and +15.2% on a 2 yr. stacked basis. This suggests a huge rebound in the mom & pops during last quarter!
• Sharp FSR Decline Triggered by Lockdown Threats
• Higher Commodity & Construction Prices May Continue into 2022
3Q21 Same Store Sales
3Q:21 comps increased +11.7% y/y for the $1B+ Chains and +11.3% on a 2 yr. stacked basis as all segments of the industry have fully recovered.
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RR Insights Journal – Nov
Restaurant employees are likely burned-out and perhaps a little distrustful of their employers after working so long to compensate for sharply lower store headcounts.
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Carl’s Jr.
Strong YTD comps through 9/21 reflect drive-thru benefit and traction with the brand’s menu and marketing improvements. All-the-same, high rent and labor costs on the West Coast make it difficult for the brand to sustain price value as a premium positioned brand in an increasingly price sensitive market post-stimmy.
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RR Dashboard: Oct 2021
• 3Q:21 Sales Strength Tempered by Labor Shortage.
• Restaurant stocks sharply underperformed in October as deteriorating labor issues and near record commodity costs are squeezing margins.
• 95% of restaurants have experienced significant supply delays or shortages of key food items in recent months, according to a survey by the National Restaurant Association.
Buffalo Wild Wings
While BWW has considerable brand equity as the largest and perhaps most iconic sports bar chain in the US, its challenge is how to improve its relevancy in the new world it finds itself operating in.
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RR Insights Journal
Insightful Q&A with Popeyes operator John Brodersen about the state of the industry. Topics covered include top-line, labor, food costs & real estate. Also executive summaries for Denny’s & Arby’s.
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RR Dashboard: Sep 2021
• QSR Finally Ramps-up Value Amid Record Core Price Hikes
• Consumer Weakness + Inflation = Higher Value Mix
• Labor Issues and Difficult Comparisons Weigh on QSR
• Cap Rates Reach All-Time Low
Denny’s
• Denny’s unique “America’s Diner” brand positioning provides the promise of everyday value with craveable, indulgent products (comfort food) served around the clock.
• Current sales benefit from off-premise stickiness and incremental sales generated by its 2 new virtual brands (Burger Den & Meltdown).
• Now that Denny’s has largely returned to its 2019 unit-level financial performance, the chain must continue to contemporize by making further progress around lunch and dinner while also leveraging progress around off-premise to extend its reach to a younger demo.
Wingstop
• Wingstop is the only $1B+ national chain with an exclusive specialization in the hot chicken wing category.
• A system high AUV translates into a near all-time high EBITDAR in absolute dollars.
• Bone-in wing price volatility represents perhaps the chain’s most significant risk.
2Q:21 Same Store Sales
• 2Q:21 comps increased +37.9% y/y for the $1B+ Chains and +12.8% on a 2 yr. stacked basis as all segments of the industry have fully recovered.
• 3Q:21 comp trends are moderating, reflecting flat disposable income (less government assistance) coupled with significantly higher menu and gas prices.
1H:21 Valuation & Restaurant Finance Update
• Franchisee EBITDA valuation multiples continue to recover and are now only -2.9% below their 2H:16 peak.
• Premiums for deals with $1M+ in aggregate EBITDA continue to rebound off the 1H:20 low.
• Full year 2021 restaurant originations are expected to increase +19.1% compared to initial expectations in January.
Burger King
• 3rd largest burger chain with a well-established brand equity around flame grilling.
• Burger platforms include the signature Whopper configurations and various “King” varieties.
• New Ch’King Sandwich helps BK enter into the chicken sandwich war.
• BK’s challenge is to find ways to expand its market reach towards new, more affluent consumers who are willing to pay for the brand’s strong core equities and quality upgrades.
RR Dashboard: Aug 2021
• 2Q Results Surpassed 2019 & Are Now Moderating
• Consumer Outlook Weakens
• More Franchisee Consolidation Expected in 2022
Taco Bell
Taco Bell is extremely well positioned as the only $1B+ national QSR Mexican player (category of 1) with core equity around abundant value and craveable food with a bold flavor profile. A positive long-term sales outlook reflects: strong value equation; innovative marketing calendar; strong positioning with Millennials; ability to address multiple dayparts including breakfast, Happier Hour/snack & late night; access to expanded DSP marketplaces; and new store formats which increase capacity for off-premise digital.
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Unit Economics
• RR’s Unit Economic Report provides: (1) FYE 2020 unit level AUV along with COGs, labor, royalty, advertising, other operating and EBITDAR margin estimates for 44 chains; (2) a 5-year history of unit economic performance; (3) an analysis of food and labor cost drivers; and (4) aggregate G&A margins, rent margins and leverage ratios based on RR’s annual lender survey.
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RR Insights Journal
• The following data is based on RR’s Annual Lender Unit Economic Survey representing more than 15,400 franchised units (14,800 QSR and 600 FSR across 29 chains) for FYE 2020.
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Dashboard: July 2021
• Possible Pause from Astounding 2Q Sales Results
• Drive-Thrus Back in Favor
• FSR Feels Need to Discount More So Than QSR
• Food Inflation & Labor Shortages are a Thing
Popeyes
• The iconic “Love that Chicken from Popeyes” tagline emphasizes the emotional bond of loyal customers with a unique brand positioning around a flavorful Louisiana heritage.
• Sales strength over the last couple of years reflects resounding social media marketing success around its chicken sandwich.
• While Popeyes’ eye-popping success with its chicken sandwich has helped the brand to drive its store-level profitability to an all-time high, intense competition around all things chicken poses a current challenge to the leader of the pack.
TRAFFICAST: FORWARD LOOKING CONSUMER SURVEY
• RR’s Intent to Eat Out Index (our survey of consumers’ plans to eat-out over the next month) continues its downward trend, consistent with today’s 2Q21 GDP release which reported a -26% decline in disposable personal income (after increasing +58% during 1Q21), primarily reflecting a decrease in government stimulus.
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Menu & Promotions Report
● Average menu size contracted -5.2% for QSR through 1H:21 given a post-lockdown focus on minimizing operational complexity and maximizing drive-thru speeds.
● Conversely, FSR menu size rebounded +6.8% (although still -21% below the 2014 peak) after declining -17.6% last year as the chains pivoted to an off-premise model.
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