Same Store Sales Trends

2Q Results Surpassed 2019 & Are Now Moderating

  • 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.

  • However, RR’s Intent to Eat Out Index (RR’s survey of consumers’ plans to eat-out over the next month) suggests that 3Q21 comp trends are moderating, reflecting flat disposable income (less government assistance) coupled with significantly higher menu and gas prices.

  • Total food service sales are following prices higher, with a particularly notable ramp-up in grocery store prices.

Stock Performance

First Positive Month for the RR Index Since April

  • The RR $1B+ Chain Index posted its first positive month since April as FSR gains offset a slight QSR decline.
  • In any case, the industry has enjoyed very strong YTD results.

Promotional Composition

QSR Continues to Diminish its Value Focus

  • QSR value mix declined another 7% in August (representing a new low) while the average promotional price point increased +1.9% y/y.

  • The FSR value mix continues to trend higher and is being driven by an increase in other value offers (primarily new loyalty member rewards) which more than off-set fewer specific price point value promotions.
  • In any case, the average promotional price point was down -9.0% y/y during August.

Economic Outlook

GDP Forecast Lowered as Consumer Outlook Weakens

  • 3Q GDP forecast was lowered to +3.7% from +6.3% last month as the outlook for consumers weakens.
  • Press reports indicate that as many as 750,000 renters are at risk of eviction with 2.5MM – 3.5MM behind on rent (with $12B – $17B owed to landlords).
  • Consumer confidence pulled back sharply in August after steady YTD gains through July.
  • Gas prices have increased for 9 consecutive months and are now +45% higher than last August which further squeezes disposable income.
  • A moderating 10 year reflects mounting economic challenges.

Key Cost Trends & Forecasts

Material Food Inflation & Labor Shortages

  • While job openings continue to ramp-up as sales volumes surge, labor shortages are restricting 2H21 comp growth prospects.

Franchisee EBITDA Valuations

More Franchisee Consolidation Expected in 2022

  • According to Alan Gallup National Franchise Sales – “Consolidation is expected to continue in 2022 as strong and quality operators prosper by reduced competition and the economy, while weaker operators who have postponed the inevitable challenges of poor operations and poor capitalization, will be under siege by creditors and franchisors.”

Marcus & Millichap Cap Rates

Cap Rates Follow 10 Year Down

  • Cap rates declined to their lowest level since February on average transaction volume, following the 10 year lower.
  • The average QSR rate was 5.2% compared to 6.3% for FSR.