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September 2018


Same Store Sales Trends

Solid 3Q Comp Outlook Remains on Track

  • Solid 3Q comp sales outlook from the Street for $1B+ chains remains on track as increased value focus may be driving traffic.
  • Preliminary 3Q government data indicates strong restaurant sales growth (+11.3% in August's advance Total Food Service & Drinking Place sales).



Source: RR Quarterly SSS (outline), Hedgeye & Census Bureau



Promotional Composition

QSR Doubled Down on Value while FSR Innovates

  • QSR doubled down on value in September with more $1 & $2 offers while FSR eased discounting to promote new menu items
  • The mix of non-price specific value offers (BOGOs, free item with app download, happy hour specials) continues to rise and represented ~8% of value promotions during the month (almost double the mix since the beginning of the year).



Source: RR Menu & Promotions Report (Outline)


Economic Outlook

Economy Continues to Hum Along

  • 3Q GDP growth expectations were revised down to +4.1% from +4.7% last month, but still represents strong economic growth.
  • Pros: increasing disposable income; low unemployment rate; strong consumer confidence (September reading highest since 11/00); and lower tax rates for 2018.
  • Cons: Higher gas, interest rates & commodity costs.


Source: Government Data



Key Cost Trends & Forecasts

Mixed Operating Costs with an Improving 2019 Food Outlook

  • Operating costs were mixed in September with the BLS Foodstuffs Index up +1.3%, restaurant wages hitting a new high and coffee falling to another LTM low.
  • 2019 USDA outlook is favorable with an improvement in September's cost outlook for eggs, beef, and pork (although chicken is slightly less favorable).


Source: RR Commodity & Labor Database (Outline)


Source: NOAA


Franchisee EBITDA Valuations

Store Valuation Multiples Down Slightly

  • September survey shows franchisee EBITDA valuations are down slightly due to margin pressure driven by rising labor costs and creeping  interest rates, somewhat off-set by ample access to capital.
  • According to Alan Gallup (National Franchise Sales), third party delivery is adding to sales, but profit margins are slightly off due to cost pressure from labor and new packaging.  



Source: RR 1H18 Valuation & Finance Report (Outline)


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Stock Valuations from Hedgeye Risk Management

QSR M&A Activity Fuels Restaurant Stock Rally

  • RR's $1B+ Index continued to gain ground in September, fueled by QSR M&A activity with the pending acquisition of Sonic by Inspire Brands and reports that both Papa John's and Bojangles' are exploring a sale or other strategic alternatives.



Marcus & Millichap Cap Rates

Strong Demand for This Asset Class Supports Lower Cap Rates

  • Cap rates trended down for the 3rd consecutive month despite interest rates creeping higher and reflects continued strong demand for this asset class.
  • Recent transactions include the impact of M&A activity by large franchisees buying smaller operators and then spinning-off the fee real estate.






Recently Completed Reports


Burger King     Subway



Special Order Reports


New building design to improve service


  • Strong brand equity (particularly in core northeast markets) is built on coffee strength bolstered by convenience and fast service.
  • 9,141 units (all franchised) at FYE 2017.
  • 425 new units projected FYE 2018 (all franchised).
  • 2018 new building and remodel design facilitates on-the-go ordering & digital transaction efficiencies which will help improve service speed (the brand’s core competency). 



Get up to speed with a delivery leader

  • Core brand equity around "Freaky Fast" delivery as the only national sub chain offering in-house delivery.
  • 2,755 units (55 company/2,700 franchised)
  • 142 new units projected FYE 2018 (1 company/141 franchised)
  • New Factory Design new build image represents a 25% cost savings.

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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