4Q19 Investor Calls: Key Points & Analysis
- The successful brands continue to add value in some form or another sufficient to drive higher tickets. It could be from menu improvements or innovation or digital order platform upgrades that add convenience to go with a higher check.
- It seems that those consumers with means can be cajoled into spending more if they perceive a value-added proposition in some form that resonates.
- Things are better for the casual segment than they have been for some time. Casual players had basically priced themselves out of the market while their menu quality and innovation stagnated. Not only that, but their facilities were allowed to grow old – a major problem for dine-in customers. Fortunately, we see the major players figuring out value, off-premise & facilities at the same time a good chunk of consumers have more to spend. Bottom line is that time-starved Americans can be convinced that a fun & tasty time out is good use of time so long as it is within their budget.
- The family segment posted modest results as these players work on balancing traffic with margins. We thought it was interesting that Denny’s reported that 15% to 25% of its guests are value driven while IHOP reported a much higher 40%. In any case, the challenge for these chains is to position themselves to capture more share from the affluent without letting go of the value seekers, possibly following in the footsteps of the QSR chains who are becoming more adept at this.
QSR Burger Segment
- QSR burger results were strong, and as we said, it is notable that McDonald’s monster quarter did not stop Wendy’s or even Jack in the Box from putting-up very decent results. McDonald’s story was about mix as check benefitted from delivery, AI up-selling at the drive-thru, increasing kiosk sales and add-on sales from things like $1.29 for 6 donut sticks. Wendy’s did a great job with its promotions, following its one more visit, one more dollar play book.
- Papa John’s turnaround is beginning to gain traction as the chain repositions itself into a more relevant brand. Domino’s continues to generate consistent growth as it deals with delivery competition by pivoting slightly towards a very cost-effective carry-out proposition. Both of these players benefit from Pizza Hut’s struggle to deal with a system bifurcated by an abundance of dine-in assets. Finally, it is important to consider how Little Caesar’s entry into delivery will affect the other segment players.
- Chicken is the thing currently, and chicken sandwiches in particular. During Popeyes chicken sandwich re-launch, the brand trended #1 on Twitter, became the top search on Google and generated billions of media impressions worth considerably more than the brand’s entire annual U.S. ad fund spend. Only Popeyes eye popping results could overshadow Wingstop’s double-digit performance as this chain benefits from growing recognition driven by its national ad campaigns. Even though we are relatively bearish on traditional marketing compared to digital, it seems that it can still work as a way to build brand awareness even if it maybe less effective in driving sales for established brands.
- The coffee segment performed very well during the quarter with both players benefitting from higher-end beverage innovation to go with digital order platform improvements that add convenience. Starbucks and Dunkin’ realize that with so much low-priced, low-end competition from QSR and c-stores, they must give their customers a reason not to skip a visit to save a buck.
- Finally, the Mexican segment continues to perform well and Chipotle posted double-digit growth as the brand’s turn-around continues to establish a track record. Taco Bell continues to execute with a 4% comp driven by relevant promotions, higher ticket kiosk sales and even faster service speeds.