Social Media Posts – Summer 2018

By Rick Ormsby
Managing Director
[email protected]

Wendy’s CEO sees consumer spending as challenging, stark difference from Target’s best-in-decades view

Wendy’s CEO comments that consumer spending is currently a challenge with lower-income diners. Let’s hope it improves! I see the industry having lower traffic this year and increased competition from eating-at-home and from an oversaturation of new restaurants. Commodity cost favorability has been helpful for P&Ls, partially hiding wage inflation in many states.

The Comfort-Food Burger Chain Expanding Across America

I have several friends/clients who are Freddy’s franchisees as their 2nd or 3rd brand. Based in Wichita, it is a frozen custard and steakburger franchise founded in 2002. They have 300+ units and will likely approach $500MM in system-wide sales this year. The food is great, and the brand has a really nice following. Like many newer concepts, strong unit sales will be the key determinant in the brand’s success as it struggles to cut costs to attract a larger franchise audience. And costs are likely high right now – food cost, labor hours and asset costs. It is also a challenge to advertise in new markets with a low advertising spend.

Bojangles’ to Close Stores, Slow Growth in Optimization Plan

Franchisor development obligations will quietly result in significant value destruction in the franchise industry in coming years. Bojangles’ is a case study for this predictable cycle – franchisor pushes big unit development, bunches of new stores open, sales start to flatten with saturated unit count, cannibalization occurs, franchisees/investors get angry, executives realize the problem and refocus on the core business, underperforming stores get closed, menu gets simplified, brand refocuses on value, new ad agency develops fresh campaign, existing stores get remodeled, brand starts slow turnaround, brand picks-up momentum, things really start going well – then the cycle repeats, unless there is wisdom and experience within the executive team to prevent it.

Checking in on Pizza Hut’s $130M Comeback Plan

Rome wasn’t built in a day. Nice overview of the slow-building turnaround at Pizza Hut…$130MM digital spend, new ad agency and CMO, 3 minute improvement in delivery times, better customer satisfaction, NFL and NCAA sponsorship upside, Telepizza deal internationally, slowly improving sales trends, etc…

Here’s why you need to pay attention to Cava’s acquisition of Zoes Kitchen

Owners of Cava Group have made a take private offer for Zoe’s at a 33% premium to its recent stock price. Mediterranean food is a high-growth segment with no national player. However, Zoe’s has been struggling, and fast-casual unit level economics are often questionable – labor model and real estate costs are too high, they appeal to a customer base that changes their minds quickly, etc…The deal has a 35-day go-shop provision, where Zoe’s can look for better offers. If this deal happens, Cava and Zoe’s will be a compelling story as Ron Shaich’s involvement should be very positive for the combined companies.

Steak ‘n Shake offers franchise partner deal

While many franchise systems are looking for large, intuitionally-backed consolidators, Steak ‘n Shake is developing a new franchisee model similar to that of Chick-fil-A, where an owner/operator model comes in with a small upfront investment and pays a 15% royalty to the company plus 50% of pre-tax profit.

KFC lines up ‘Seinfeld’ star as its new colonel

Jason Alexander is the new KFC Colonel. Alexander also did KFC commercials in the early 2000’s when I worked at Yum Corporate. Many will remember his Popcorn Chicken promotion with Barry Bonds in 2002.

Taco Bell owner beats on top and bottom line, falls short of key sales metric

Q2 same stores sales….KFC +2%, Taco Bell +2%, Pizza Hut (1%). KFC met expectations, while Taco Bell and Pizza Hut missed. I think we will see a strong Q3, buoyed by modest top-line growth and improvement in margins. Labor increases will likely be offset by substantial commodity cost deflation in most (but not all) markets.

McDonald’s Value Strategy Takes a Turn

Restaurant traffic has been paltry this year, dangerously hidden by steep discounting. McDonald’s seems to have the right rhetoric on menu pricing – ‘they don’t want to win on value, but they don’t want to lose either.’ Value is a sustainable strategy only if customer experience and food quality are strong. And don’t forget technology.

2018 Top 200: 10 unit-growth leaders

NRN cites the fastest growing restaurant chains. They are growing unit counts by 20%+ with average system sales increases of 35%. These names include Zoe’s Kitchen, Cooper’s Hawk, Habit, First Watch, Pret a Manger, Black Bear Diner, Mod Pizza, Shake Shack and others.

Taco Bell is Hosting Hiring Parties, Complete with Signing Bonuses

Automation can’t get here fast enough – hiring is incredibly tight right now in the restaurant business. Competition for delivery drivers is uber intense as everyone is pushing delivery (there will be winners and losers here). This Taco Bell article caught my eye – hosting hiring parties as a creative way to attract new workers.

Improving Restaurant Sales Chart a Steady Course

TDn2K’s Black Box is reporting June restaurant same store sales were up 1.1%, while traffic was disappointing at (1.7%). Sales were anemic this time last year, so the hurdle was very low. Let’s hope for a stronger back-half of 2018!

Chipotle to Close 55–60 Restaurants in Revamp Plan

Chipotle is closing 55-60 stores to get stronger. Unfortunately, most franchisors have a myopic view of store closures. Reducing unit count can actually increase a brand’s health tremendously (ex. KFC). It is an extension of the Biblical concept of ‘separating the wheat from the chaff.’

Top fast-food, full-service restaurants for customer satisfaction named in new ACSI survey

While Chick-fil-A scored 1st in the ASCI favorite chain index for a third straight year (Panera was 2nd), I was impressed with Pizza Hut, who had the largest gain in customer satisfaction scores, increasing 5 points to 80%. Congrats to Pizza Hut and Artie’s team for making some incremental improvements needed to push the brand forward.

Rick Ormsby
Managing Director
[email protected]