June 2017


May 2017

Key Industry Comments during 1Q17 Investor Calls



  • Dunkin' - industry challenges include: the Amazon effect - consumers demanding higher-quality products more quickly and at lower prices; a 3-point gap between food-at-home and food-away-from-home indices; low unemployment which is driving inflation that translates into slightly lower real income; and the challenge to recruit & retain quality labor (industry turn-over rate exceeds 150%) in a low unemployment environment.
  • McDonald's - mobile order & pay will be in 14,000 restaurants by the end of the year. This will lead to a better developed customer relationship management (CRM) program with some form of loyalty tied to it.
  • Starbucks - corporate alluded to an article highlighting that more retail stores have closed in 1Q17 than closed in all of 2016 with more retail stores expected to close this year than in any year during the Great Recession starting 2009. All this is to say that retail destinations require a consumer experience that evokes human emotion and connection.
  • Wendy's - a cautious consumer environment reflects higher disposable income offset by a higher savings rate, debt repayment and higher costs (healthcare, rent & student loan debt).


  • Outback - consumers seek more differentiated experiences that deliver the best 360 degree dining occasion and are less motivated by price promotions. Also, consumers seek more convenience in their dining occasion. Industry traffic is expected to decline -1% to -2% this year. 
  • Cheesecake - inclusion of calorie counts on the menu did not generate changes to guest behavior which is consistent with the chain’s experience in California & Washington state where they have been in place for some time.
  • Chili's - corporate believes that value LTOs are not the best way to drive its business because they increase operational complexity and confuse guests.
  • Olive Garden - the consumer has been pretty steady and is looking more for everyday value and less for promotional value constructs.
  • IHOP - 50% of Americans order food to-go at least once a week and 90% order food to-go at least once a month. 

Click to read more ...



  • Could deteriorating service explain why industry performance is not all it could be?



Category: Sonic, McDonald's, Dunkin', Wendy's, Panera, Smashburger, Hardee's, Arby's, Burger King, Carl's Jr., Jack in the Box, Papa John's, Domino's, Starbucks & Taco Bell

Click to read more ...



Delivering on Delivery

  • A well-known investment bank estimates that the $30B restaurant delivery market (> 50% from pizza) has the potential to grow to $210B. McDonald's says restaurant delivery is a $100B market. Wow!
  • Delivery may add convenience for those cocooning at home, but how about the added cost in an extremely price sensitive market?
  • 3rd party delivery fees can range from $4 - $8 plus tip. With restaurant consumers focused on the grocery store price gap, who exactly is it that is going to drive delivery to a $210B business?
  • The pizza players have demonstrated how their proprietary delivery can be cost effective, but that business line has been in their DNA for decades. 
  • We suggest that operators focus on delivering the fundamentals first before confusing things with too much emphasis on delivery.

Source: RR/BDO 2017 Consumer Survey

Click to read more ...




Franchise Loan Originations Peaking

  • 2016 restaurant originations reached a new all-time high as the entrance of new lenders more than offset the void from GE Capital’s exit.
  • 2017 origination prospects are solid, although slightly less bullish.
  • Borrowing rates ticked-up in 2016 due to a slight increase in spreads and index rates with a similar outlook expected for 2017.


Source: RR's 2017 Franchise Finance & Valuation Report (outline)



Public Valuations Outdistancing Franchisee Multiples 

  • Peaking franchisee unit level EBITDA valuation multiples.
  • Public franchisor EV/EBITDA multiples continue to rebound, creating a larger premium to private multiples. 
  • Current real estate cap rates reached new lows.


Sources: Hedgeye; RR's 2017 Franchise Finance & Valuation Report (outline)

Click to read more ...