Sit-Down Restaurant Challenges, RBI, BJ's Restaurants, Yum!, Papa John's & More
Featured Analyses from Newsletter
Burger King's results reflect traction from investments in remodels, digital, and equipment. Tim Hortons seeks to improve its afternoon menu offerings, Popeyes is riding the success of its wing platform and Firehouse Subs is making a big push to have a 100% digital mix (currently at 40%) while providing franchisees with incentives to develop new stores.
Tyson Foods reported that the consumer is under pressure, especially lower-income households who are struggling with 20% cumulative retail inflation over the last 3 years and a historically low savings rate. Price-sensitive consumers are prioritizing essential staples over discretionary categories and management reported shifts from fine dining into QSR & QSR slippage into meals consumed at home. Tyson is closely monitoring the cattle cycle and key commodity costs.
Restaurant traffic has been challenged since covid, with the most current explanation attributed to elevated menu prices and a punk economy. Further, traffic declines have been most notable at sit-down restaurants which offer a more expensive, discretionary experience relative to fast food. A Mother's Day trip to an independent sit-down restaurant provided us with an eye-opening 360-degree view of the sector's problems.
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BJ's was able to bounce back from a difficult January to achieve flat March 2024 comps. While past menu price increases are pressuring 2024 traffic, they are also helping boost margins which further benefit from moderating inflation and store-level efficiency improvements. Negative comps for the first 4 weeks of 2Q24 reflected a large round of pricing taken last year although improving traffic trends include the chain's strongest results of the year during April.
Shake Shack reported that it is addressing industry traffic pressure with the increased use of marketing (to drive brand awareness & frequency) and LTOs. January comps started flat but improved during each successive month through April (+4.9% comps & flat traffic during April helped by its Chicken Sunday campaign) and into May. Notably, April's pricing of +7% to +8% declined to +2% during May.
It is fortunate that Taco Bell U.S. & KFC International drive 80% of Yum's profits given challenges with KFC & Pizza Hut's domestic comps. In any case, Yum is focused on implementing the most advanced restaurant tech with 40 AI initiatives that span from marketing to operations, including a "Super App" which helps managers access operational information to improve their decision-making.
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While Papa John's premium pizza positioning is currently pressured by increasingly price-conscious consumers, the company plans to better communicate its value offers, organic delivery and loyalty program during 2H24.
Dine Brands reported lower sales from customers making under $50k, with less change in consumer habits noted as income increases. Both Applebee's & IHOP reported a trade-down from more expensive menu items to less expensive ones. Applebee's 3 value LTOs drove 28% of its sales mix (up +9% q/q), reflecting consumer pressure during the quarter. Applebee's & IHOP are working hard to find value equations capable of driving both traffic & profits.
Performance Food Group Company reported that softness during the quarter was almost entirely a January story. Its Foodservice business rebounded nicely in February & March, producing improved independent case growth and stable restaurant chain performance. QSR was soft (with flat case growth during the quarter), casual dining was very soft and independent restaurants did okay.
Post-covid consumers are visiting an increasing number of grocery stores which works well for Sprouts Farmers Market as a complementary shop option with a higher-than-average fresh mix and product differentiation. While customers are reacting to volatile fresh produce prices (particularly avocados), management is not concerned about any specific categories in terms of unit volume.
Mondelez reported declining frequency from U.S. consumers who are much more cautious about price points (particularly lower-income consumers). For example, it's Chips Ahoy! Cookie brands are losing some market share to cheaper private-label brands.
Marriott International expects that healthy travel demand and a continuation of current macro trends will drive +3% to +5% FY24 RevPAR growth, reflecting: Group strength (group rates for weddings, business, students, etc.); Business transient improvement; and slow growth for Leisure transient. RevPAR growth is expected to be stronger in international markets relative to the U.S., indicative of a strong $US which makes it cheaper for Americans to travel abroad.
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