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Tuesday
Dec112018

 

RR Roundtable: 3Q18 Results

 

 

 

Source: Quarterly Concept Update Report (click for outline)

 

Key 3Q18 Highlights

 

  • Applebee's - 3Q18 comps increased +7.7% driven mostly by traffic, representing the best sustained sales & traffic performance in at least 14 years. Off-premise sales (10% mix) grew +37% during the quarter, representing half of comp growth. Results also reflected: abundant value; buzzworthy culinary & beverage innovation; variety; and service improvements that are driving all-time high guest satisfaction scores.
  • Burger King - Recently unveiled its new modern Burger King of Tomorrow restaurant image (pilot in Miami company stores) with plans to roll-out the program across the U.S. This upgrade includes its Garden Grove design to go with: double drive thru lanes; kiosks; outdoor digital menu boards which can be integrated with its app; and an open kitchen which provides a full kitchen theater experience. Reimaging will be required at end of franchise agreements and at mid-terms with royalty incentives offered to accelerate remodeling. Reimage capital requirements are a “bit more” than past renovation.
  • Cheesecake - Off-premise mix was 13.5% during 3Q18 (up from 12% in 3Q17) with good initial traction reported with its online ordering platform available through its website. 60% to 70% of off-premise sales are incremental.
  • Chili's - While its 3 for $10 value offer (starter, entrée & drink) was successful at driving traffic during lunch & dinner, it was also primarily responsible for the -2% mix decline. 
  • Chipotle - New news is not the brand’s primary “unlock”, but rather removing friction with digital access, reclaiming throughput capability and increasing brand visibility with resonant "For Real" campaign.
  • Del Taco - While the launch of its new $1 Chicken Quesadilla Snacker (on the Buck & Under menu) set a record in terms of units sold, its high mix caused negative check trends without any improvement in traffic. 
  • Domino's - Corporate reported that its Piece of the Pie loyalty program continues to contribute meaningfully to traffic gains while the launch of Domino's Hotspots (200,000 locations across the US) and the Paving for Pizza program are generating “terrific” attention (more effective than a LTO of the month approach). 
  • Dunkin' - A more predictable & stable 2019 is expected to be driven by: brand promise of providing great coffee fast; simplified menu which makes room for more impactful product innovation; a “collective voice” on national value; Next Generation restaurant design which is more relevant and also combines ops & tech to improve service speed. 
  • IHOP - To-go comps increased by +35% y/y including +26% traffic growth and now represents 7% mix (up from 5% last year). Corporate believes it can grow off-premise mix to the mid-teens over the next few years with much of this representing an incremental contribution. 
  • Jack in the Box - Franchisees and representatives of the NFA have expressed complaints about their need for higher sales to deal with rising labor costs. To this end, the operators would like to see the appointment of a CMO and less discounting which corporate believes is necessary given current marketplace realities. Operators believe that discounting leads to trade-down but corporate says the data reveals that customers are either trading into your brand or trading out of your brand depending on your $5 offer. 
  • McDonald's - Corporate expects to win back breakfast traffic with a combination of: national value; a return to local breakfast deals; and new food offerings.
  • Olive Garden - Off-premise is driven by catering (minimum $100 orders) which is generating very high customer satisfaction scores. No plans for a meaningful use of 3rd party delivery.  OG’s off-premise mix could eventually get to 20%.
  • Outback - Growth reflects investments in customer-facing improvements across food quality, portion enhancement, service upgrades and improved ambiance.
  • Papa John's - Bridge solutions to bolster franchisee profitability through the end of 2018 include: royalty relief; some relief in food cost; a delay in the +25 bps increase of its national marketing fund contribution that was previously scheduled for 4Q; and a delay in an online fee increase despite significant corporate tech investments.
  • Red Robin - Mix decline reflected heavier usage of its Tavern value menu and lower beverage mix (both alcoholic & non-alcoholic). 
  • Starbucks - Beverage growth was driven by a strong performance of its cold platform (Nitro, Refreshers, Cold Brew & Cold Foam). Afternoon improvement reflects operational efficiencies that frees-up time for partners to better interact with customers. 
  • Wendy's - Corporate believes that it could have done a better job of driving trade-up and incremental sales had it offered low priced options for use as add-ons as opposed to individual purchases that lower check.
  • Wingstop - Digital sales mix increased +3.6% to 25.4% during 3Q18 and nearly 80% of the system now generates 20%+ of mix from digital channels which provide operational efficiencies along with a check which is $5 higher than its $17 non-digital average check. 
  • YUM! - 1,200 KFC restaurants now offer delivery through Grubhub (30% of the system in 7 months) and above-average customer ratings on the Grubhub/KFC experience is expected to improve once POS integration is complete for the system later this year. In September, corporate launched a fully integrated solution between the Taco Bell POS & Grubhub marketplace (which is currently extended to only 2,100 stores/30% of the system). 

 

 

 

Please pass on to your colleagues

 

Disclaimer of Liability: Although the information in this report has been obtained from sources Restaurant Research® LLC believes to be reliable, RR does not guarantee its accuracy. The views expressed herein are subject to change without notice and in no case can be considered as an offer or solicitation with regard to the purchase or sales of any securities. Restaurant Research’s analysis and opinions are not a guarantee of the future performance of any company or individual franchisee.  RR disclaims all liability for any misstatements or omissions that occur in the publication of this report. In making this report available, no client, advisory, fiduciary or professional relationship is implied or established. This report is intended to provide an overview of the restaurant industry, but cannot be used as a substitute for independent investigations and sound business judgment. Copyright 2018.

 
 

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