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October 2019



Restaurant Research Thermometer

Industry Insights Edition



RR New Unit Investment Report Highlights


  • The sales-to-investment ratio for $1B+ chains continue to trend down after peaking in 2013, driven by construction cost increases and a slight decline in new build AUV’s. 


  • RR's New Build vs. Buy Ratio rose for the 3rd consecutive year as construction cost inflation and a slight decline in store-level acquisition multiples increases the appeal of acquiring existing stores.


  • The % of franchisors offering development incentives reached a 6-year high with reductions in franchise fees, royalties & ad fee contributions. In some cases, cash outlays are offered to improve new build economics.


Source: RR's New Unit Investment Report (outline)



Drive Revenue and Brand Engagement with AI


  • Quantifind’s proprietary machine learning/AI identified the top 10 brands whose buyers talk most about their customer experience (identified by modeling social conversation to sales).



  • Interestingly, a high share of consumers talking about their customer experience does not necessarily translate into favorable buyer sentiment…




Click above for more information




Real Life Cost for a Subway Delivery  


  • Delivery nearly doubles the cost of a Subway pick-up order in the Charlotte market.
  • All this make us wonder if wallet share taken by incremental delivery charges helps explain Darden’s recent comment that “weakening industry trends are unusual given the economic strength of the consumer”.



Source: RR 


Denny's - RR Executive Summary


Denny's is uniquely positioned as an admired and loved "local" family chain serving classic American comfort food at a fair price around the clock for unpretentious, everyday occasions. The chain seeks to move its positioning beyond serving breakfast all-day towards an unpretentious diner with trusted burgers, salads, etc. (i.e. more credibility with the other dayparts). Its new "See You at Denny's" messaging is designed to prompt consumers to check out the brand's fresh makeover which includes: remodels at 84% of its stores, creating a more comfortable dining space; a menu overhaul using higher quality ingredients; and a new focus on diversity, equality & inclusion initiatives (we just don't serve you, we see you) to better connect with its diverse customer base. The goal is to convert very high brand awareness into trial & frequency and multimedia marketing efforts include commercials targeting African-American & Hispanic diners across TV, Hulu, YouTube, Vevo, Facebook and Instagram. A simple menu positioning largely reflects the idea that consumers want to indulge when they dine out because they can stay at home for something plain & simple and the menu benefits from well-known signature items including its famous Original Grand Slam platter. A strong everyday value equation comes in the form of its $2468 menu platform, value promotions (including its $5.99 Slam offers), senior discounts and kids eat free deals. Comps have been positive for the last 8 calendar years and outperformed the segment average over the last 5 years with strong 2Q19 results. Going forward sales tailwinds include: off-premise growth that better positions the brand with a younger demo; remodeled stores; improved menu offerings; and a customer demo that benefits from increased employment & wage growth. All-the-same, today's competitive operating environment requires an ongoing value emphasis which is difficult given ongoing labor cost pressures. Also, the chain's challenge remains to drive repeat business beyond an occasional breakfast and to grow other dayparts without diminishing the brand's very important breakfast business. Further, the chain must address its own reality as a 60+ year old system which includes older, under-performing stores. In conclusion, we expect Denny's to continue gaining traction in a difficult operating environment as it focuses on making “America’s Diner" ever more relevant.

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Subway - RR Executive Summary


Subway is the largest sub sandwich chain by far with the 2nd largest ad spend in all of QSR behind McDonald's with core brand equity in the form of: customization (made-to-order) epitomized by the brand's “Choice Mark” logo; interaction between sandwich artists & guests; sub sandwiches which include lots of veggies; and bread baked in-house. A complete overhaul of senior brand management is most welcome and the chain's current turn-around plan seeks to: optimize assets; modernize existing units; innovate with new flavors & ingredients; and better connect digitally with customers and its target market. Fortunately, the system has finally managed to put development on a much-needed hold while the system continues to benefit from the culling and relocation of its weakest stores. Existing stores benefit from the roll-out of its Fresh Now platform (Flavor Stations, Fresh Pour Beverage Stations & updated menu boards) and more affordable facility upgrade options which suggest that its remodel initiative maybe complete in 5 years. A ramp-up in menu innovation could help Subway distinguish itself among sub-sandwich competitors better known for quality than innovation and 2018 comps improved to flat which suggests that its new brand positioning and store culling is beginning to gain traction. However, while Subway is certainly taking steps in the right direction, competition is perhaps the fiercest it has ever been for this iconic chain and it is notable that the brand still has more work to do to find the right value equation that works for consumers as well as its franchisees. Further, years of comp declines leaves a system AUV with little margin for safety and little capability for capex investments at a time when the new brand management could use some breathing room as they must necessarily tweak their turnaround initiative which is in its very early innings. In conclusion, while it is difficult to assess how long it will take the largest sub chain to reignite sustainable sales, Subway continues to move forward in a sensible manner such that its competitors would do well to take note.



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Think'in It Through...


How Low Can It Go??



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 2019.



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