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April 2019 Insights



Restaurant Research Thermometer

Industry Insights Edition



Key Points from RR's 2019 Menu Report 


  • After years of menu optimization in an effort to simplify operations in order to speed-up service and improve food quality, the industry has finally found a point of equilibrium (i.e. menu sizes are just big enough to keep things interesting). 


  • However, this optimization strategy has included a reduction in new product news which may be good for operations, but perhaps not so good for traffic.

  • Rather, QSR has been focused on increasing its value promotion mix as a way to drive traffic, to little effect. Conversely, FSR has used less deal promotions but an increase in everyday value and quality to help improve traffic.

  • The reason that value plays such an important role currently is because of the cumulative effect of menu price increases over the years, especially in comparison to flat inflation for food-at-home.

  • It is completely understandable why operators have taken so much pricing over the years given a steady rise in labor costs which continues to ramp-up according to data from the Department of Labor. 

  • So what gives? Should we assume the name of game is all about labor optimization?? More kiosks, less employees and lower prices? Well, maybe there is a lesson to learn from Chick-fil-A (see below).

Source: RR's Menu Report (outline)


Chick-fil-A Takes the Industry to School


  • Here is the simple lesson to explain Chick-fil-A's massive growth, it's all about optimizing labor - not cost optimization, but rather labor output. 
  • Offer the highest pay & provide everyone with a day off to rest and you are able to recruit the best employees. This is exemplified by an operator in Sacramento CA who gave his employees a raise to $17 - $18/hr. up from $12 - $13 last year in anticipation of the eventual rise in California's minimum wage to $15 in 2022. That has got to buy some goodwill!  
  • In turn, the best employees provide the most desired fast food dining experience in QSR.  The numbers speak for themselves.


Source: RR estimates



RR's IHOP - Executive Summary


IHOP is well established as the largest player in the $1B+ family chain segment with 28% market share and the largest marketing budget in segment. While the brand enjoys a breakfast heritage leadership positioning particularly around world famous, flipped fresh pancakes, IHOP seeks to expand to “all things breakfast, any time of the day” and beyond this, to lunch & dinner with its recent and significant push into burgers, including a very successful 2018 media event in which IHOP pretended to re-brand as IHOb (burgers). To this end, increased investments in research and consumer insight leads marketing & promotions which drives ample buzz worthy innovation (like its Pancizzas promotion which generated 1B digital impressions) that helps break through the clutter. Also, IHOP N’ GO online ordering platform benefits from the concept's 24-hour accessibility and has helped drive impressive growth in off-premise traffic & check with plenty of runway left. The chain's strength in social media and its online ordering platform plays well to the brand's younger demo (51% of guests are 34 or younger). Taken together, improved marketing & innovation, service, daypart expansion, off-premise and remodeling has helped generate positive comps in 2018 after 2 years of decline. In any case, we suggest that an everyday value platform could drive even stronger comp growth and a lean into value is possible given food costs that strongly outperform the segment average, reflecting a large mix of high margin pancakes. In conclusion, we like IHOP's strategy, improvements and execution and believe things could only get better if the chain is able to address everyday value in a margin friendly way given the current operating environment.



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Think'in It Through...


Betting on Value...


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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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