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September 2019



Restaurant Research Thermometer

Industry Insights Edition



RR 2Q19 SSS Report Highlights


  • Comp trends have been steadily improving over the last year with particular 2Q19 strength driven by QSR (and McDonald's in particular) as the chains have gotten the message that value and deals are right for the times. Value gets them in and it seems that it is not so hard to trade them up to more premium products once they come.


  • People are back to drinking coffee as we can see in the table below, but more of the high-end espresso variety that they can’t get at c-stores or at QSR food restaurants which explains why Starbucks posted a comp 4x higher than Dunkin’.
  • Conversely, Pizza has cooled as we can see below. Consumers now have many more delivery options than ever before, but even so, Domino’s and Pizza Hut have been able to post decent results. Time will tell how much of a dent delivery will ultimately make on pizza because it is too difficult to extrapolate current results given such a large level of delivery charge discounting currently in the marketplace.


  • In any case, with almost all of the industry players posting positive 2Q19 results, there seems to be enough to go around with development currently running at more modest levels.


Source: RR's Quarterly SSS Report (outline)



Drive Revenue and Brand Engagement with AI


  • The topic of value drives between 1% to 6% of conversations, with a 2%+ average.  The top 5 brands whose buyers talk about value are shown below.

  • Notably, while cheap prices may spur value discussions, they maybe counter-productive if not matched with positive consumer sentiment around the offer.


Click above for more information





Slowing Development = Sales-to-Investment  


  • Sales-to-investment ratio for $1B+ chains continues to decline as higher new build costs continue to exceed growth in new build AUVs.


Source: RR New Unit Investment Report (outline)


Arby's - RR Executive Summary


Arby's strong QSR positioning is based upon a credible NY deli format that bakes beef roasts and freshly slices all other roasts in-house in order to create fast crafted, made-to-order hot deli sandwiches. Its sandwiches are distinguished by generous stacks of quality meat toppings (big, meaty sandwiches) and leading-edge protein variety which extends well beyond Arby's core roast beef heritage. This positioning is unique to the $1B+ QSR segment and contrasts with veggie-heavy foods offered by many fast-casual concepts. Arby's menu also offers a compelling alternative to burger, chicken-only and cold-cut sub concepts. Innovative LTOs drive trial and add variety while a steady layer of price point value LTOs helps competitive positioning in the current operating environment. Further, its selection of LTO gourmet Market Fresh sandwiches & salads expands the concept's appeal to more upscale, health conscious consumers (eliminating the veto vote). Marketing seems to break-through the clutter and its effective “We Have the Meats, For Sandwiches” marketing campaigns have better oriented the brand towards a younger demo. Having said all this, it is not surprising that Arby's sales, while positive, have under-performed over the last couple of years which reflects the challenge of a premium positioned QSR chain in our current operating environment dominated by discounts and value. Also, Arby's sales would probably benefit from a faster remodel and digital cadence as it continues to evolve its image beyond its core roast beef products which still drive the majority of sales. An all-day breakfast offering (bagels made from chicken meat??) probably could help as well. In conclusion, while Arby's is well positioned as a QSR player that can serve as a credible alternative to a NY deli, the brand may require the wrap-up of a few more ongoing upgrade initiatives to complete its evolution sufficient to return to comp out-performance in today's hyper-competitive world.


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Burger King's - RR Executive Summary


Burger King's well-conceived brand equity emphasizes flame grilling (over an open flame), highlighting its clear difference from griddling. Its humorous, quirky marketing supports a steady stream of hi/lo offers promoting value, premium and fun menu innovation which works well with social & digital channels. Short, funny TV ads feature: compelling food shots; humorous testimonies from actors that look like real customers; use of "King" mascot (with a big-headed mask); and tie-ins with pop culture. Effective digital marketing is marked by BK's use of "trolling" competitors (particularly McDonald's) and "hackvertising" which seeks to hijack a competitors' trending marketing push. Promotional focus on its signature Whopper (i.e. bigger) line along with quality upgrades has helped return this platform to its original flagship menu positioning and an upgraded chicken platform also seeks to leverage BK's flame grilling distinction. The brand's strong value position is reflected by an above-average value promotion mix with value offers available at the bottom, mid-tier and top of the menu. Unique innovation around existing platforms minimizes operational complexity (& SKUs) and a recent launch of the BK Café platform helps position the brand to better address the important breakfast daypart while its plant based Impossible Whopper launch addresses the needs of those that are more health conscious. Customer experience benefits from process/equipment improvements and tighter quality control initiatives and BK posted the fastest drive-thru speed in QSR according to a 3rd party survey. Facilities also benefit from an ongoing rollout of its "BK of Tomorrow" upgrade (similar to MCD's EOTF) which includes exterior digital menu boards, kiosks and double drive-thrus. Having said all this, it is notable that BK has struggled to balance value & premium and a late 2018/early 2019 pivot that de-emphasized value has since been reversed as BK realized that the market remains price sensitive. In conclusion, while Burger King is doing a good job executing around the fundamentals, its challenge remains how to better balance its hi/lo promotional strategy sufficient to drive comp out-performance.



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Think'in It Through...


Profitability for 3rd Party Delivery Providers??



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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