Follow us on Twitter
« December 2018 | Main | October 2018 »

November 2018



Restaurant Research Thermometer

Industry Insights Edition



Development Headwinds


  • Rising building costs and declining new build AUVs continue to pressure sales to investment ratios and new unit development for the $1B+ chains (+2.9% projected 2018 gross unit growth would represent the slowest rate in at least 16 years).

  • RR's New Build vs. Buy Ratio rose for the 2nd consecutive year as construction cost inflation increases appeal of acquiring existing stores (especially given relatively flat acquisition multiples).


Source: RR 2018 New Unit Investment Report (outline)


What is Driving Demand for Deals?


  • While food-away-from-home spending growth was up +6.7% in 2017, we see even faster growth in education, vehicle purchases, owned housing, entertainment, health insurance & food-at-home.
  • Could it be that Americans are getting back into home ownership with everything it represents (home cooked meals, cars for the garage & health insurance for the kids)?
  • Also, could a double-digit increase in education spend suggest that economic growth is prompting the unemployed to pursue degrees rather than jumping back into the job market?
  • In any case, consumers scrimping-and-saving for the American dream may be more interested in restaurant deals for now…


Source: RR & BLS


Value Not Cutting It During 3Q18


  • The big surprise from Del Taco's 3Q18 results was that 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.
  • Corporate attributed this to the plethora of options for value-driven consumers as we enter into the industry's 3rd year of heavy competitive value promotions & discounting.
  • A quick messaging pivot to its Epic Burritos during the 2nd half of 3Q18 helped restore check trends and teaches an important lesson that winning the game requires more than just competing around price value.

  Source: RR's Quarterly Concept Update (outline)



RR's Hardee's Report - Executive Summary


Hardee's is distinguished in QSR by a Southern classic, comfort culture brand positioning which includes table service and a strong breakfast orientation (44% mix). Specialty hand crafted food includes: made-from-scratch breakfast biscuits; made-to-order charbroiled burgers (with over-sized patties & Black Angus options); hand-breaded chicken tenders; charbroiled chicken line with no artificial ingredients, preservatives or antibiotics ever; and hand-scooped ice cream shakes. Value comes in the form of its $5-$7 All Star Meal box every day value platform, various national LTO deals and local offers advertised in-store/on the windows. While the chain's AUV underperforms, its COGs far outperforms the segment average which reflects a profitable breakfast mix and a historical aversion to discounting and low price-points. We also appreciate CKE's plans to separate Hardee's & Carl's (in terms of marketing & menu), benefitting both brands given sharply different geographies and demos. This means Hardee's can now pursue menu, marketing and facilities which best suit its regional orientation in the South & Midwest. Having said all this, the brand remains challenged to compete with the larger, national players around value/discounting because it lacks sufficient share of voice to promote both quality and value sufficiently to overcome trade-down. The challenge is to run Hardee's as a regional brand which requires a very different skill set compared to the past practice of seeking to combine the disparate brands in pursuit of national scale. Some operators believe the brand would be better off emphasizing ample mid-tier choices of higher quality menu options and this reflects the belief that Hardee's is used more as an occasion visit as opposed to a QSR heavy user stop. In any case, a high level of turnover for the brand's ad agencies reflects the difficulty of defining a suitable brand positioning amidst all of these issues. Weak comps over the last couple of years also reflect a lack of an all-day breakfast, operational complexities associated with Hardee's business model that pressures service speed and a lack of a digital ordering platform (which is forthcoming). In conclusion, stakeholders must exercise patience as CKE's new management team continues to find ways to leverage the chain's considerable brand equity built upon quality biscuits, burgers & tenders in a difficult, competitive operating environment sufficient to reinvigorate Hardee's comp performance.


Email RR for Pricing & Report Order Info

RR's Carl's Jr. - Executive Summary


Carl's Jr. is a West Coast regional chain which should benefit from its ongoing brand separation from Hardee's (allowing Carl's to be Carl's) with a resultant return to its positioning around West Coast cool, bold, passionate, disruptive and edgy. Burgers account for 75% of lunch/dinner mix, mostly represented by the chain’s almost ¼ lbs. non-Angus beef patty platform which provides a compelling mid-tier pricing option. Other brand attributes include: over-sized burgers & unique Angus platform; charbroiled chicken line with no artificial ingredients, preservatives or antibiotics ever; hand-breaded chicken tenders; made-from-scratch biscuits; and milkshakes made with hand-scooped ice cream. Its higher-end Thickburgers are competitive with “better burger” brands, but offered at more affordable prices, and value is supported by its All Star Meal box platform & Charbroiled Sliders LTO. Annual comps through 2017 were modestly positive since bottoming in 2009 - 2010 (although slightly negative YTD 2018), helped by steady menu price increases and the 2012 intro of Hardee's high margin breakfast options. An outperforming EBITDAR margin reflects a material COGs benefit (lack of discounting to go with menu price increases) which more than offsets a relatively low AUV, high ad expenditure (necessary to compensate for CKE's relatively small scale) and labor cost pressures. In any case, high rent & labor costs on the West Coast discourage discounting and make it difficult for the brand to compete around price in a very price sensitive market and Carl's premium burger positioning continues to be pressured by marketplace realities. Sales are also challenged by the lack of all-day breakfast (reflecting operational complexities) and digital access (late to the game in terms of customer facing tech & delivery). In conclusion, while the brand is finally rediscovering its true roots, the competitive reality of the marketplace likely requires a new approach to price/value, preferably one that will not dilute Carl's Jr.'s West Coast cool.


Email RR for Pricing & Report Order Info


Think'in It Through...


Hi-Low Marketing




Special Reports

  • 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). 

Email RR for Pricing and Report Order Info


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.



Reader Comments

There are no comments for this journal entry. To create a new comment, use the form below.

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
All HTML will be escaped. Hyperlinks will be created for URLs automatically.