Dashboard: Feb 2021

Normalizing the Economy, Consumer & Valuations: QSR Continues to Deliver as FSR Starts 2021 Recovery; Rotation from QSR to FSR as Dine-In Restrictions Ease; Now is Not the Time to Move-Off Value; Hopefully Economic Boost & Easing Restrictions Take Root; Commodity Inflation Has Everyone’s Attention; The Trick is to Forecast a True Normalized EBITDA; Cap Rates Move Higher with Interest Rates

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Restaurant Finance & 2H:20 Valuation Update

RR’s Finance & Valuation report is based on survey responses (equally weighted) from 50 finance companies including traditional cash flow lenders, sale leaseback companies, SBA lenders and equipment finance companies and provides an overview of the state of restaurant finance, valuations and cap rates for 2H:20. While 2020 traditional restaurant financing volume of $7.9 billion represented a -24% y/y decrease reflecting diminished financing demand driven by government COVID-19 restrictions, lending is expected to pick back up in 2021.

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RR Insights Journal: $15/hr Survey Results

• Operators were more than eager to weigh-in with their opinions on plans to increase the national minimum hourly wage from $7.25 currently to $15 over the next few years.
• Our survey is well represented by 198 operators across different brands and geographies as outlined below.
• 91% of survey respondents think this initiative is flawed for a host of reasons which are organized and outlined below.

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Church’s Chicken

Church’s specializes in Southern-style, hand-battered, double-breaded fried bone-in chicken (available in Original & Spicy) which is marinated for 12 hours & freshly prepared throughout the day in small batches and complimented by its freshly baked home-style sides and scratch-made Honey Butter Biscuits to form a complete meal for individuals and families. The chain has a Southcentral geographic concentration (Texas roots) with a target market that includes lower income, urban families and value oriented young adults.

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Remodel Programs 2021

Remodel data and analysis on 50+ national chains, including: (1) remodel progress/system condition; (2) investment costs; (3) post remodel sales increases; (4) franchisor remodel incentives; and (5) program scope.

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• RR’s Intent to Eat Out Index (our survey of 1,500 consumers’ plans to eat-out over the next month) increased +7.4% y/y, representing both the second largest monthly increase and absolute score since survey inception.
• We credit this with improving price value (see chart below) combined with government stimulus.

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Sonic enjoys strong brand equity (particularly in core South & Central Plains markets) around its drive-in format with car stalls, friendly carhops and a plethora of specialty drinks & frozen treats. Its unique drive-in format increases the chance that every customer will be first in line, served by car hops (brand ambassadors) that help to generate high scores for friendliness. This format also allows customers to take their time ordering without concern about slowing a drive-thru line.

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Dashboard: Jan 2021

Building Momentum should Benefit from More Value; More Value is Just What the Doctor Ordered; Recent GDP Expansion is Poised to Increase; Ramping Labor Costs, but Deflationary Food Prices; Improving FSR Valuations; FSR Rebound Drives RR Index’s Outperformance; Cap Rates Fell Sharply Because of Lower QSR Supply

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RR StockSense – January 2021

QSR names continue to benefit from an asset-light model which insulate these companies from store-level margin compression. This segment also benefits from healthy post-lockdown performance as strong drive-thru and digital access solutions translate into solid valuation multiples with many stocks trading close to their 52-week highs.

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