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March 2019



Restaurant Research Thermometer

Industry Insights Edition



Key Points from 4Q18 Investor Calls 


  • Decent 4Q18 industry results reflected that 83% of chains under coverage reported positive comps (+1.9% average). 



Source: RR's Quarterly Concept Update (outline)


Restaurant Share Continues to Ramp-Up


  • Grocery stores continue to lose retail share to restaurants as consumers become increasingly comfortable with cost competitive full-serve options. 
  • However it is notable that despite the trends, grocery stores continue to pass-along more moderate price increases on an absolute basis.
  • All this suggests that consumers prefer to eat-out if they can afford it.  



Source: US Census Bureau

Tax Refund Catch-Up Should Help Comps


  • 2018 refunds have increased only slightly despite tax cuts which reflects that consumers opted for lower withholdings throughout the year.
  • In any case, industry comps should benefit as returns processed (and associated refunds) catch-up with last year's pace, thus providing consumers with more spending cash.  


Source: IRS



RR's Jack in the Box - Executive Summary


Jack in the Box's strengths include a high penetration in its core California markets, humorous ads around a unique brand personality and a diverse menu which spans a wide range from premium sandwiches at the top to its popular tacos at the bottom - hitting all dayparts with brunch during the day, breakfast all-day and late-night "munchies" for the party crowd. The primary idea is that JACK's menu addresses various cravings throughout the day. A better burger positioning is reinforced by its Buttery Jack burger platform & Double Jack and, although this is a regional system with 69% of its stores located in California & Texas, the brand enjoys leading QSR hamburger share in 8 of its top 10 markets. The quantity of JACK's new product intros exceeds the segment average, reflecting the brand's commitment to relevant innovation while a new, simplified menu reduces redundant SKUs and streamlines operating procedures. Sales and access should benefit from plans to implement drive-thru upgrades to 80% of the system over the next 3 years and new app & delivery functionality provides a popular option for dinner & late night guests. Having said all this, the brand's price value positioning (necessary to drive traffic in a price sensitive market) is challenged by a lack of sufficient scale and an elevated operating cost structure typical of California. This is challenging as 50% of Jack’s customers are value oriented and it is notable that this is on the high side for QSR. Further, JACK may benefit from a more clearly defined core menu competency given its limited share of voice. This is all reflected by cooling comps which are notable given system tailwinds which include: stronger breakfast & late-night sales due to new product intros; an increasing percentage of franchised stores now open 24/7 (which also helps breakfast sales); and service improvements. To make matters worse, franchisees have filed a lawsuit against the franchisor and JACK is exploring a strategic sale which may be necessary because of its severe system disunity. While an increase in its marketing calendar featuring value promotions from 50% to 80% in 2019 may help traffic, it could also further aggravate those franchisees opposed to discounting. In conclusion, no matter the owner/brand leaders, Jack in the Box must find a new path to pursue sufficient unit-level profitability in today's world marked by sharply rising costs on the West Coast and aggressive QSR discounting.



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RR's Church's Report - Executive Summary


Church's Chicken is a 65+ year old regional brand that is well established as a key chicken segment player (especially within core markets). Its ongoing brand repositioning includes: new marketing efforts across all channels; improved communication/relationships with franchisees & employees (new Excellence Advisory Council); and supply chain improvements. Church's strategy is to target both long-time loyalists as well as new guests with its mix of Southern heritage and bold Texas taste provided by its original hand-battered fried chicken (that can be spiced with jalapenos to squeeze on top) which is complimented by classics that include baked macaroni & cheese and scratch-made Honey Butter Biscuits. The brand's "Flavor First Fans" positioning emphasizes customization and a complete, authentic meal prepared by hand by real people at a competitive price. Food quality reflects chicken made in small batches all day long and biscuits drizzled with sweet honey-butter right out of the oven. Its optional spicy chicken flavor profile (marinated all-night) appeals to Hispanic target market and Millennials while a rich choice of southern, home-style sides provides guests with an even greater ability to customize their orders beyond a plethora of mix-and-match protein options. Discount promotions in store windows are important sales drivers with bundle deals at the $5, $10 & $20 price points (dark meat offers provide more pieces for the money) and national promotions also feature $5, $15 & $20 price points. Having said all this, sales trends for this smallest national bone-in chicken player have been pressured by: lack of media efficiency; strong competition from national bone-in chicken players (particularly Popeyes & KFC) and regional bone-in players (like Chicken Express in Texas); QSR sandwich discounting to go with this segment's strong incursion into chicken products (such as Burger King's 10 chicken nuggets for $1 promotion); increased competition from supermarkets; and a secular trend towards healthier foods & boneless chicken. Church's orientation towards inner cities has also magnified segment sales challenges given an extended period of consumer weakness among the lower income demo. Resultantly, its franchisee AUV has not increased much beyond its 2011 level thus slowing the pace of reimaging and development. In conclusion, Church's is executing around a solid strategy that should help sales, unit level profitability and capital investment over time.



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Think'in It Through...


March Madness...

...My tax refund has finally arrived, let's go eat


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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