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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RR Insights Journal

State of the Consumer: (1) While government stimulus was successful at buoying the 2-year annual growth rate for total retail sales to a level slightly higher than pre-lockdown results, there was a clear market share shift among industries as consumers pivoted to a new reality; (2) The key question is how much grocery spend will return to the restaurant space over time?

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• Applebee’s benefits from key brand positioning elements which include: a comfortable grill with great tasting food & a prominent bar area; abundant value; decorating cues tied to individual neighborhoods; and appeal as a place to connect with family & friends.
• A strong 2021 rebound reflects the retention of off-premise sales even as dine-in returns to normal.
• While Applebee’s has worked hard to balance the pursuit of value for its core Middle American customers and increased relevancy to attract a younger guest, more time may be needed to address the disparate needs of these demos especially as the system seeks to recover from a post-lockdown world.

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Papa John’s

• Papa John’s quality positioning currently facilitates higher price point promotions, supporting check.
• The brand’s ongoing turnaround (including the addition of Shaq as a spokesperson) has succeeded at broadening its reach with new & lapsed customers.
• If there is one chink in the armor, it maybe that Papa John’s pivot away from value could have medium to long-term implications depending on consumer strength in the new, post-lockdown world.

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Dashboard: June 2021

• Sales Recovery Getting Industry Back to 2019 Levels
• Lumber & Cheese Prices Tank Despite Broader Inflation
• Franchisee EBITDA Multiple Valuations on Track for Full Recovery

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TraffiCast: Forward Looking Consumer Survey

• It seems that material food-away-from-home inflation can only be absorbed by government stimulus. Without this, traffic suffers.
• Notably, supplemental unemployment benefits are set to end in at least 25 states beginning in mid-June.
• Fortunately, child tax credit payments are forthcoming shortly.
• Weakness is most notable among the working age demos (25-64).

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Franchised Store Ownership Trends

• The level of company store ownership has increased for the 2nd consecutive year as the corporate development rate continues to exceed the franchise development rate and more franchised stores are acquired than sold.
• The 2020 franchise transfer rate exceeded the development rate for the 9th year in a row, which reflects: a continued move towards franchisee consolidation (in search of scale-based cost efficiencies) and high construction costs.

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